5. A Capital Budgeting Process Should: Account for the time value of money; Account for risk; Focus on cash flow; Rank competing projects appropriately, and Lead to investment decisions that maximize shareholdersâ wealth.
6.
7. Global Wireless $175 Year 5 inflow $160 Year 4 inflow $130 Year 3 inflow $80 Year 2 inflow $35 Year 1 inflow -$250 Initial Outlay $32 Year 5 inflow $30 Year 4 inflow $25 Year 3 inflow $22 Year 2 inflow $18 Year 1 inflow -$50 Initial Outlay
8.
9.
10.
11.
12.
13. Net Present Value (NPV) NPV: The sum of the present values of a projectâs cash inflows and outflows. Discounting cash flows accounts for the time value of money. Choosing the appropriate discount rate accounts for risk. Accept projects if NPV > 0.
20. IRR Analysis for Global Wireless Global Wireless will accept all projects with at least 18% IRR. Western Europe project: IRR ( r WE ) = 27.8% Southeast U.S. project: IRR (r SE ) = 36.7%
21.
22.
23. Multiple IRRs Which IRR do we use? When project cash flows have multiple sign changes, there can be multiple IRRs. IRR IRR