SWARNAM S CAPITAL RATIONING. INTRODUCTION Capital rationing situations arises when a firm operates within a fixed budget It other words, it means the.

Slides:

Advertisements

Similar presentations

Capital Budgeting.

Advertisements

Fin351: lecture 5 Other Investment Criteria and Free Cash Flows in Finance Capital Budgeting Decisions.

9-0 Chapter 9: Outline Net Present Value The Payback Rule The Discounted Payback The Average Accounting Return The Internal Rate of Return The Profitability.

Capital Budgeting1 Select investments which increase value of firm Maximize wealth of shareholders Important to firm’s long-term success  Substantial.

TOPIC 3 Investment Appraisal.

Chapter McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 9 Net Present Value and Other Investment Criteria.

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. 9 Net Present Value and Other Investment Criteria.

1 The Basics of Capital Budgeting: Evaluating and Estimating Cash Flows Corporate Finance Dr. A. DeMaskey Should we build this plant?

CAPITAL BUDGETING TECHNIQUES

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. 9 Net Present Value and Other Investment Criteria.

Net Present Value and Other Investment Criteria

0 Net Present Value and Other Investment Criteria.

© Harry Campbell & Richard Brown School of Economics The University of Queensland BENEFIT-COST ANALYSIS Financial and Economic Appraisal using Spreadsheets.

Issues in Capital Budgeting II

Project Appraisal, Capital Rationing, Taxation and Inflation

Chapter 9. Investment In Long-Term Assets Chapter Objectives Difficulty in finding profitable projects Use capital budget techniques to evaluate new.

Other Investment Criteria and Free Cash Flows in Finance

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Net Present Value and Other Investment Criteria Chapter 9.

4. Project Investment Decision-Making

COMPLEX INVESTMENT DECISIONS

Discounting Future Cash Flows

Capital Budgeting Investment Rules

INFLATION AND CAPITAL BUDGETING INFLATION IS THE INCREASE IN THE GENERAL LEVEL OF PRICES FOR ALL GOODS AND SERVICES IN AN ECONOMY.

Intermediate Macroeconomics

Topic 1: Introduction. Interest Rate Interest rate (r) is rate of return that reflects the relationship between differently dated cash flows. Real risk-free.

Investment Decision Rules 04/30/07 Ch. 10 and Ch. 12.

Capital Budgeting FIN 461: Financial Cases & Modeling

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Net Present Value and Other Investment Criteria Chapter Nine.

Fin351: lecture 4 Other Investment Criteria and discounted Cash Flow Analysis Capital Budgeting Decision.

Chapter 9 - Making Capital Investment Decisions

Chapter 6 IT Cost Control Management of Computer System Performance.

AEC 422 Fall 2014 Unit 2 Financial Decision Making.

Investment Analysis Lecture: 7 Course Code: MBF702.

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Making Capital Investment Decisions Chapter 6 (10)

Management and Cost Accounting, 6 th edition, ISBN © 2004 Colin Drury MANAGEMENT AND COST ACCOUNTING SIXTH EDITION COLIN DRURY.

Making Capital Investment Decisions Chapter 6 Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

© 2004 by Nelson, a division of Thomson Canada Limited Contemporary Financial Management Chapter 10: Capital Budgeting: Decision Criteria and Real Options.

Chapter 12 The Capital Budgeting Decision. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. PPT 12-1 FIGURE 12-1 Capital.

RTI,Chennai Learning Objective Given the concepts of Decision Analysis, Option Pricing and Investment Decisions, the trainee will be able to audit the.

Risk, Return, and Capital Budgeting (Chapter 12) Financial Policy and Planning (MB 29)

Ch 12: Capital Budgeting Decision Criteria

DETERMINING CASH FLOWS FOR INVESTMENT ANALYSIS

課程三 :Investment Decision with Certainty 課程重點 : –Introduce MIRR –Identify the relevant cash flows –An example –Discussing capital rationing –Hoemwork assignment.

$$ Entrepreneurial Finance, 5th Edition Adelman and Marks 10-1 Pearson Higher Education ©2010 by Pearson Education, Inc. Upper Saddle River, NJ Capital.

Accounts & Finance Investment Appraisal HL Only. Learning Objectives Understand discounted cash flows and apply and analyse the net present value method.

Copyright © 2002 Pearson Education, Inc. Slide 6-1 If we look at finance in terms of buying and selling claims, The Bond Is the Good Buyer: Lender who.

The Capital Budgeting Decision Chapter 12. Chapter 12 - Outline What is Capital Budgeting? 3 Methods of Evaluating Investment Proposals Payback IRR NPV.

Conflicting NPV and IRR ranking The ranking of alternative proposal and the decision regarding selection of a proposal on the basis of NPV and IRR may.

$$ Entrepreneurial Finance, 4th Edition By Adelman and Marks PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Capital Budgeting.

AGEC 407 Investment Analysis Time value of money –$1 received today is worth more than $1 received in the future Why? –Earning potential –Risk –Inflation.

MEASURING ECONOMIC PERFORMANCE FREE RESPONSE QUESTION.

Introduction to Economics of Water Resources. Public or private Excludability (E): the degree to which users can be excluded Subtractability (S): the.

Copyright: M. S. Humayun Financial Management Lecture No. 12 Capital Rationing Batch 3-5.

0 Corporate Finance Ross  Westerfield  Jaffe Seventh Edition 6 Chapter Six Some Alternative Investment Rules.

Cost of Capital. n For Investors the rate of return on a security is a benefit of investing. n For Financial Managers that same rate of return is a cost.

Investment Analysis Lecture: 13 Course Code: MBF702.

Using Discounted Cash Flow Analysis to Make Investment Decisions Project Analysis By : Else Fernanda, SE.Ak., M.Sc. ICFI.

Chapter Inflation and Capital Investment Analysis

IMPACT OF INFLATION ON BUSINESS STRATEGY Page:

Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Management Accounting: Information for managing and creating value 4e Slides prepared by Kim Langfield-Smith.

Other Criteria for Capital Budgeting Text: Chapter 6.

BENEFIT-COST ANALYSIS Financial and Economic Appraisal using Spreadsheets Ch. 3: Decision Rules © Harry Campbell & Richard Brown School of Economics The.

Part Three: Information for decision-making Chapter Fourteen: Capital investment decisions: the impact of capital rationing, taxation, inflation and risk.

Chapter 8 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.

Investment Appraisal – Discounted Cash Flow (NPV)

Introduction to Economics of Water Resources Lecture 5

الباب الرابع التحليل المالي وتقدير ربحية المشروع

Topic 1: Introduction.

Capital Budgeting and its Techniques

Presentation transcript:

SWARNAM S CAPITAL RATIONING

INTRODUCTION Capital rationing situations arises when a firm operates within a fixed budget It other words, it means the selection of only some of the profitable investment proposals and the rejection of others profitable investment proposals due to limited availability of funds

TYPES OF CAPITAL RATIONING Hard Capital Rationing - A capital budget to which a company must adhere Soft Capital Rationing - limits based on the judgments of senior management

REASONS FOR CAPITAL RATIONING External Reasons : Imperfection of capital market information is not quickly disclosed to all participants in it and where the matching of buyers and sellers isn't immediate Internal Reasons : Company constraints

Steps in Capital Rationing Ranking of the different investment proposals Selection of some of the profitable investment proposals -- divisible project (project which can be accepted in parts) -- indivisible project (project which can be accepted or rejected entirely)

INFLATION AND CAPITAL BUDGETING Fall in the value of money For Example: A person would like to buy 1 kg of apple with Rs.100. Now when the inflation rate is 5% then the person would require Rs.105 to buy the same quantity of apples Inflation is of expected inflation and unexpected inflation Expected inflation is where the manager anticipates Unexpected inflation refers to the difference between actual and expected inflation

Inflation and Cash Flows Estimating the cash flows is the first step for selecting the proposals Determine cost and benefits Effects on Inflation on Cash Flows Discounting Cash Flow is generally expressed in nominal terms It would be inappropriate to use nominal rate which are not adjusted for impact of inflation Real Rate of Return should be determined

Inflation and Discount Rate The Discount rate has become one of the central concepts of finance It is greatly influenced in calculating NPV Effects of Inflation on Discount Rate: To be consistent and free from bias, the cash flow should match with the discount rate.

Implications The output price should be higher than the expected rate of return If the company is not able to raise the output price, it can make some internal adjustments in working capital The adjustments should be made through capital structure