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Ebook Financial management principles and applications (10th edition): Part 2

(BQ) Part 2 book "Financial management principles and applications" has contents: Cash flows and other topics in capital budgeting; capital budgeting and risk analysis, cost of capital, managing for shareholder value, analysis and impact of leverage, analysis and impact of leverage,.and other contents.` | CHAPTER 10 ~ Cash Flows and Other Topics in Capital Budgeting A major capital-budgeting decision led Harley-Davidson to has risen 8 years over the past 12 years. This aging of the introduce the Buell Blast in 2000 and the Lightning Low XB95 motorcycle-riding population played a major role in the deci- in 2003. This multi-million dollar investment by Harley in sion to go forward with the Blast, and from early returns, it sma'ller, lighter motorcycles designed for the new or novices looks like it was, in fact. an excellent decision. rider who is not yet ready for the traditionally heavier Harley- How exactly do you measure the cash flows that come from Davidson bike was targeted directly at younger and female the introduction of a new product line? What do you do about riders. Although this capital-budgeting decision may, on the surface, seem like a relatively simple decision, the forecasting cash flows that the new pro~uct brings to other product lines? In the previous chapter, we looked at decision criteria, assuming of the expected cash flows associated with the Buell Blast the cash flows were known. In this chapter, we will see how dif- were, in fact. quite complicated. ficult and complex it is estimating those cash flows. We will also To begin with, Harley-Davidson had two goals in mind gain an understanding of what a relevant cash flow is. We will when it introduced the Buell Blast. First, it was trying to evaluate projects relative to their base case-that is, what will expand into a new market made up of Generation X-ers. Sec- happen to the company as a whole if the project is not carried ond, it wanted to expand the market for existing products by out. In the case of Harley's Buell Blast and Ligh'tning Low, we will introducing more people to motorcycling. That is, the Buell also look at the sales that these new products brought down the Blast was meant to not only produce its own sales, but even- line to Harley's cruising and