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CFA Level 1 - Corporate Finance

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Capital Budgeting process

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Terms in this set (97)

Capital Budgeting process

identifying and evaluating capital projects....projects where the cash flow to the firm will be received over a period longer than a year.

Capital Budgeting Steps

1) idea generation
2) analyzing project proposals
3) create the firm-wide capital budget
4) monitoring decisions and conducing a post-audti

Cap Budgeting Principals

1) decisions based on cash flows, not accounting income
2) Cash flows based on opportunity costs & taxes
3) timing of cash flows is important
4) Cash flows are analyzed on a after-tax basis
5) financing costs are reflected in the projects required rate of return

effects the acceptance of a project may have on other firm cash flows.

Cannibalization

when a new project takes sales from an existing product