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l2 25 capital budgeting

This class was created by Brainscape user Steven Popovic. Visit their profile to learn more about the creator.

By: Steven Popovic
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Decks in this class (9)

a calculate the yearly cash flows of expansion and replacement capital projects, and evaluate how the choice of depreciation method affects those cash flows;
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b explain the effects of inflation on capital budgeting analysis;
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c evaluate capital projects and determine the optimal capital project in situations of 1) mutually exclusive projects with unequal lives, using either the least common multiple of lives approach or the equivalent annual annuity approach, and 2) capital rationing;
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d explain how sensitivity analysis, scenario analysis, and Monte Carlo simulation can be used to assess the stand-alone risk of a capital project;
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e explain and calculate the discount rate, based on market risk methods, to use in valuing a capital project;
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f describe types of real options and evaluate Acapital project using real options;
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g describe common capital budgeting pitfalls;
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h calculate and interpret accounting income and economic income in the context of capital budgeting;
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i distinguish among the economic profit, residual income, and claims valuation models for capital budgeting and evaluate a capital project using each.
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l2 25 capital budgeting

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