Chapter 1

Capital Budgeting: Financial

Appraisal of Investment Projects

Welcome to the Power Point Presentation

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 Introduction
Chapter 1 introduces the concept of capital
budgeting, and sets out the structure of the
book.
The important points are:
Capital budgeting is the most significant
financial activity of the firm.
Capital budgeting determines the core
activities of the firm over a long term future.
Capital budgeting decisions must be made
carefully and rationally. 
 Capital Budgeting Within The Firm
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Ô amples of µLong Term Assets¶


 Aspects of Capital Budgeting
Capital Budgeting involves:
Committing significant resources.
Planning for the long term: 5 to 50 years.
Decision making by senior management.
Forecasting long term cash flows.
Ôstimating long term discount rates.
Analyzing risk.
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 Aspects of Capital Budgeting
Capital Budgeting:
Ômphasize the firm¶s goal of wealth
ma imization, which is e pressed as
ma imizing an investment¶s Net
Present Value: Ch 1
Requires calculating a project¶s relevant
cash flows: Ch 2
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 Aspects of Capital Budgeting
Capital Budgeting Uses:
Sophisticated forecasting techniques:-
Time series analysis by the application
of simple and multiple regression, and
moving averages:Ch 3
Qualitative forecasting by the
application of various techniques, such
as the Delphi method:Ch 4. u
 Aspects of Capital Budgeting
Capital Budgeting requires:
Application of time value of money
formulae: Ch 5
Application of NPV analysis to
forecasted cash flows: Ch 6

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 Aspects of Capital Budgeting
Risk Analysis ± RADR and CÔ: Ch 7
Application of Sensitivity and Break
Ôven analyses to analyze risk:Ch 8.
Application of Simulation and Monte
Carlo Analysis as e tra risk analysis:Ch 9.
Application of long term forecasting
and risk analysis to projects with very
long lives:Ch 10. 
 Aspects of Capital Budgeting

Application of optimization techniques

to projects which have constrained
resources: Ch 11,12.

Development and application of generic

and specific financial models: Ch 13.
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 Aspects of Capital Budgeting

Application of cash flow forecasting, and

NPV analysis to all aspects of property
investment projects: Ch 14,15
Application of NPV analysis under the
additional risks associated with
international investments: Ch 16.
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 Summary of This Book
This te tbook proceeds from the basic
to the advanced.

All chapters emphasize the firms¶ goal

of wealth ma imization.

All chapters deal with aspects of

capital budgeting which help to achieve
this goal. m
 Summary of This Book

 

  


 

   

  



 
 
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