1. Fundamentals of Capital Budgeting
Chapter 7
Fundamentals of Capital Budgeting

2. Forecasting Earnings Indirect Effects on Incremental Earnings
Opportunity Costs
Project Externalities
Common Mistake: The Opportunity Cost of an Idle Asset
Sunk Costs and Incremental Earnings
Fixed Overhead Expenses
Past Research and Development Expenditures

4. HomeNet’s Incremental Earnings Forecast

5. The Opportunity Cost of HomeNet’s Lab Space

6. The Opportunity Cost of HomeNet’s Lab Space

7. HomeNet’s Incremental Earnings Forecast Including Cannibalization and Lost Rent

8. Product Adoption and Price Changes

9. Product Adoption and Price Changes

10. Determining Free Cash Flow and NPV
Calculating the Free Cash Flow from Earnings
Capital Expenditures and Depreciation
Net Working Capital (NWC)
Calculating the NPV
Further Adjustments toFree Cash Flow
Accelerated Depreciation
Liquidation or Salvage Value
Terminal or Continuation Value

11. Net Working Capital

12. Calculation of HomeNet’s Free Cash Flow (Including Cannibalization and Lost Rent)

13. HomeNet’s Net Working Capital Requirements

14. Change in NWC

15. Net Working Capital with Changing Sales

16. Free Cash Flow

17. Free CF – alternative computation

18. Computing HomeNet’s NPV