Chapter 9 - Capital budgeting and other long-run decisions. This chapter presents the following content: Capital budgeting decisions, the time value of money, evaluating opportunities: time value of money approaches, basic time value of money calculations,. | 1 Slide 9-2 CHAPTER 9 Capital Budgeting and Other Long-Run Decisions 2 Slide 9-3 Capital Budgeting Decisions Companies, like individuals, make investments in long-lived assets Examples include Duke Energy invests in 400 roof-top solar panel installations Pfizer invests in a $294 million biotechnology factory in Ireland Nordstrom invests in a new store in New Jersey Starbucks invests in a new product: instant coffee 3 Learning objective 1: Define capital expenditure decisions and capital budgets and evaluate investment opportunities using the net present value approach and the internal rate of return approach. Slide 9-4 Capital Budgeting Decisions Investment decisions are important because they have a long run impact on a firm’s operations Decisions involving the acquisition of long-lived assets are referred to as capital expenditure decisions They often require that capital (company funds) be expended to acquire additional resources Also called capital budgeting decisions 4 Slide 9-5 | 1 Slide 9-2 CHAPTER 9 Capital Budgeting and Other Long-Run Decisions 2 Slide 9-3 Capital Budgeting Decisions Companies, like individuals, make investments in long-lived assets Examples include Duke Energy invests in 400 roof-top solar panel installations Pfizer invests in a $294 million biotechnology factory in Ireland Nordstrom invests in a new store in New Jersey Starbucks invests in a new product: instant coffee 3 Learning objective 1: Define capital expenditure decisions and capital budgets and evaluate investment opportunities using the net present value approach and the internal rate of return approach. Slide 9-4 Capital Budgeting Decisions Investment decisions are important because they have a long run impact on a firm’s operations Decisions involving the acquisition of long-lived assets are referred to as capital expenditure decisions They often require that capital (company funds) be expended to acquire additional resources Also called capital budgeting decisions 4 Slide 9-5 Capital Budgeting Decisions Most firms carefully analyze the potential projects in which they may invest The process of evaluating the investment opportunities is referred to as capital budgeting The final list of approved projects is referred to as the capital budget Learning objective 1: Define capital expenditure decisions and capital budgets and evaluate investment opportunities using the net present value approach and the internal rate of return approach. 5 Slide 9-6 Which of the following is not a capital expenditure decision? Building a new factory Purchasing a new piece of equipment Purchasing inventory Purchasing another company Answer: c Purchasing inventory Test Your Knowledge 1 Learning objective 1: Define capital expenditure decisions and capital budgets and evaluate investment opportunities using the net present value approach and the internal rate of return approach. 6 Slide 9-7 The Time Value of Money In evaluating an investment opportunity, a company must not only know
