Lecture Business finance (9/e) - Chapter 5: Project evaluation: Principles and methods

Chapter 5 Project Evaluation: Principles and Methods Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 5–1 Prepared by Dr Buly Cardak Learning Objectives • Explain the importance of each of the steps in the capital expenditure process. • Outline the decision rules for each of the main methods of project evaluation. • Explain the advantages and disadvantages of the main project evaluation methods. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 5–2 Prepared by Dr Buly Cardak Learning Objectives (cont.) • Explain why the net present value method is preferred to all other methods. • Understand the link between economic value added (EVA) and net present value (NPV). Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 5–3 Prepared by Dr Buly Cardak Capital Expenditure Process • The capital expenditure process involves: – Generation of investment proposals. – Evaluation and selection of those proposals. – Approval and control of capital expenditures. – Post-completion audit of investment projects. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 5–4 Prepared by Dr Buly Cardak Generation of Investment Proposals • Investment ideas can range from simple upgrades of equipment, replacing inefficient exiting equipment, through to plant expansions, new product development or corporate takeovers. • Generation of good ideas for capital expenditure is better facilitated if a systematic means of searching for and developing them exists. • This may be assisted by financial incentives and bonuses for those who propose successful projects. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 5–5 Prepared by Dr Buly Cardak ... - tailieumienphi.vn