| Corporate finance course | Organizing capital expenditure and evaluating performance |
 |
| • How is capital expenditure really done in practice ? Most big firms have manuals with instructions and checklists • Evaluating the performance of a given project Usually an audit ; happens after the project, but also during. 4 different families of ratios Compare actual, projected and standard profitability. Then analyse the difference. Is it due to poor analysis or bad (good) luck. Then necessary feedback (new financial decisions, new previsions) • Evaluating the profitability of a business - We use the ROI = after-tax operating income to the net (depreciated) book value Because it is based on accounting figures, the ROI has serious limits. We can not use it as a capital investment criterion (we use NPV), but to evaluate the profitability of existing businesses, we often have no other choice • When evaluating a given project, you arrive at the conclusion that the NPV < 0. Then we have to evaluate the NPV of abandonment of the project: sale of the investment, lay off the workforce. We choose the option with the highest (even < 0) NPV We must forget sunk costs: example of Superphenix. How to calculate the value of a firm >> |
|
Corporate finance PART ONE: CAPITAL EXPENDITURE PART TWO. BASICS OF FINANCE PART THREE FINANCING DECISIONS PART FOUR FINANCIAL MANAGEMENT Course created and updated by Dr David Chelly, PhD in Management sciences from the University of Tours.
|