1. Capital Budgeting

2. NATURE OF CAPITAL INVESTMENTS  LARGE $ AMOUNTS INVESTED  PERMANENT  SET STRATEGIC DIRECTION  LONG PLANNING HORIZONS  ACCURATE FORECASTS REQUIRED  VISIBLE MONUMENTS

3. ADMINISTRATIVE STEPS  IDENTIFY PROJECTS  COLLECT DATA  ANALYZE PROFIT AND RISK  GAIN REGULATORY APPROVALS  ARRANGE FINANCING  IMPLEMENT  CONTROL

4. CAPITAL BUDGETING TO OPTIMIZE PROFIT – AN EXAMPLE Project % R-of-R % C-of-C Mil. Of $'s Non-Discretionary--1080 A2010150 B181075 C1610200 D141260 E91210 F61240 G4125

5. CAPITAL BUDGETING TO OPTIMIZE PROFIT PERCENT PERCENT NON DISCRETIONARY A B C D E F G OPTIMUM CAPITAL BUDGET $565 MIL. MARGINAL COST OF CAPITAL INVESTMENT OPPORTUNITY SCHEDULE $