copyright © 2007 south-western. all rights reserved. chapter 17 expanding the business

Copyright © 2007 South-Western. All rights reserved.

Chapter 17

Expandingthe Business


Expanding the Business

2

Learning Objectives


Decisions Tasks

Budgeting Motives

Investing



3

The Key Decisions in Running a Business



4

Investment Decisions

DecisionsTasksMotivesInvestingBudgeting

Capital Budgeting



5

Classifying Capital Expenditures


ExpensesExpansionDevelopment



6

Capital Budgeting Tasks

DecisionsTasksMotivesInvestingBudgeting Estimating

Feasibility

Implementing

Proposing

Monitoring



7

Capital Budgeting Tasks




8

Mergers


Horizontal

Vertical

Conglomerate



9

Motives for Mergers


Growth

Economies of Scale

Manager Expertise

Tax Benefits



10

Merger Analysis


1 - Identify

2 - Evaluate

3 - Decision



11

Merger Procedures


Financing

Tender Offer

Integrating

Evaluation



12

Merger Issues


Defense

LBODivestiture



13

Short-Term Investments


InventoryLiquidityAccounts

Receivable



14

Present Value


Payment( 1 + Interest Rate today)

Example:$50,000(1 + .10)

PV = $45,455



15

P.V. of Future Cash Flow


CF at end of Year 1( 1 + r)

Example:$10,000(1 + .12)

PV = $8,929

CF = Lump sum cash flowr = Required return on investment



16



CF at end of Year 2( 1 + r)2 Example:$10,000

(1 + .12)2

PV = $7,972




17



CF at end of Year 3( 1 + r)3 Example:$10,000

(1 + .12)3

PV = $7,118




18





19

Net Present Value


CF @ Year 1 + CF @ Year 2PV = (1 + r)1 (1 + r)2

Example: $8,000 + $12,000 (1 + .15)1 (1 + .15)2

PV = $6,957 + $9,074 = $16,031

NPV = PV – I $16,031 - $15,000 = $1,031Feasible Project

copyright © 2007 south-western. all rights reserved. chapter 17 expanding the business

Documents