FINANCE: Chapter 6 - Planning Capital Expenditure

1. The Objective: maximize Wealth (pg 165)
• For-profit companies, wealth is monetary
• A project creates wealth if it generates cash flows over time that are worth more in present value terms than the initial setup cost.
• The goal of any publicly-owned firm should be maximize the wealth of the investors.
2. Computing NPV: Project Cash Flows (pg 166)
• Cash is the monarch (king or queen, take your pick).
• Accounting profit can be changed by judgments, opinions, and management decisions.
• Cash flow is not so easy to manipulate because cash is visible and real.
3. Guiding Principles for Forcasting Cash Flow (pg 170)
• Principal No. 1: Focus on Cash Flow
• Principal No. 2: Use expected Values
• Principal No. 3: Focus on the Incremental
4. Computing NPV: The Time Value of Money (pg 172)
• The concept that future cash flows have a lower present value and the set of tools used to discount future cash flows to their present values are collectively known as time value of money (TVOM) analysis.