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Chapter 9: Capital Budgeting Decisions Slides Prepared by: Scott Peterson Northern State University
Objectives
1. Define capital expenditure decisions and capital budgets. 2. Evaluate investment opportunities using the net present value approach. 3. Evaluate investment opportunities using the internal rate of return approach. 4. Calculate the depreciation tax shield, and explain why depreciation is important in investment analysis only because of income taxes.
Objectives
(continued)
5. Use the payback period and the accounting rate of return methods to evaluate investment opportunities. 6. Explain why managers may concentrate erroneously on the shortrun profitability of investments rather than their net present values.
Where: P = present value F = future value i = (interest) rate of return n = number of units of time
Thus: $0.68
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