Analysis for Financial Management (R. Higgins) Chapter 7 Summary

1. Discounted Cash Flow Techniques
2. Management converts strategic goals into  investment proposals
3. financial evaluation of investment proposals = capital budgeting
4. money is required today to achieve a future benefit
5. Do the future benefits outweigh the risks?
6. Is the proposed investment the most cost effective way to achieve the strategic goals?
7. Stock and Bond valuation
8. equipment purchases (and any other purchasing decisions, including investing in an MBA!)
9. discounted cash flow forms the backbone of modern finance
10. Steps for evaluating any investment opportunity
1. estimate future cash flows
2. calculate a figure of merit for the investment
3. compare the figure of merit to an acceptance criterion
4. figure of merit:  a number which encapsulates an investment's worth