Capital Financing And Cash Management

1903 WordsMay 24, 20168 Pages
Corporate Finance The chief financial officer of your company understands it is impossible to grow and flourish without new capital. Investment from outside or inside the firm generates new processes and services, and therefore new cash flows, that add value to the firm. Should we build a new factory, upgrade an existing one, or produce offshore? Would it be better to lease or buy an expensive piece of manufacturing equipment or computer system? Should we acquire a significant competitor or supplier? These are indicative of the various forms capital budgeting, capital financing and cash management can take. Any time we consider a new capital investment we need to know if the cash flow generated over time will pay for its upfront costs. How do we assess the upfront costs against projected future cash flows to guarantee a profitable return? How long will it take to generate that return? What risks do we face that may turn a certain winner into a colossal loser? How do we calculate and price those risks? What is the source of financing for these risks? Is it stocks, bonds, loans, or something else? CAPITAL BUDGETING for the LONG HAUL The primary reason executives initiate capital investment projects is value creation for stockholders. The objective of these investments is to create a higher total return consisting of dividend income and capital gains. Our initial question in corporate finance is to assess how new capital investments, like a factory, equipment purchase, or

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