Howard University Cost of Cap

finance journal.  chapters 9 and 10.  

This is an example of an old one.  since i don’t recall the weeks, you can just say in chapterWeek 12  This week, we began going over Chapter . This chapter is all about Capital Budgeting. I believe that this will be an important chapter because it will tie everything together from what we have been discussing all semester. I see that we will be discussing chapter  for three weeks, so it must be a lot of information and very important concepts that are needed to be grasped. From what I understand, capital budgeting is all about making sound, rational decisions and analyzing and determining which products will be very profitable in pursuing. It is emphasized that capital budgeting is very important for firms because they (firms) are unable to grow or survive for a long period of time if they do not find profitable ideas. It is oftentimes extremely difficult for firms to develop sound ideas because there is much stiff competition in the market; With this competition, firms often drive down the prices of their products, which lowers their profits. When they use capital budgeting, they analyze the different projects and investments, and determine if they should move forward with it, or reject it, overall. We also talked about the different criteria that firms use to help them make these decisions. Now that I have a better understanding about what capital budgeting is, I believe that I will have a better understanding of the chapter as we move forward in the coming weeks.    Week 13  This week, we continued discussing Capital Budgeting. As indicated in the book, Capital Budgeting is extremely important for firms because it is one of the factors that determine whether they will be able to remain afloat or not. At the end of last week, we began discussing criteria that firms use to make decisions. Something that particularly stood out to me is that firms focus on cash-flows when making decisions. This reinforces the first principle of finance that we learned at the beginning of the semester, which suggests that cash flow is what matters. Because cash flow is the money in a business that can be spent, it can also represent the benefits that may be derived from a particular project. One particular criterion that I believe is the most important is, in fact, the payback period. The payback period is basically the amount of time that it will require before the initial costs can be recovered. I think that this is important because it helps the investor make rational decisions whether the amount of time will be excessive before they are paid back, or will they be paid back relatively soon. We also learned about discounted payback periods which is the amount of time the initial outlay will be discounted from free cash flows. For some reason, I believe that this is a little more difficult concept for me to calculate. I guess it is because it is very similar to the regular payback period. I will try to get clarification by next week in order to have a stronger understanding of the concept.

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