Final Project

1142 Words Dec 10th, 2012 5 Pages
BUS 401 Principles of Finance

A. The company needs to focus on the free cash flows instead of the accounting profits since these are the funds flow the company will receive and will be able to reinvest. By examining the cash flows they will be adapt to predict the profits and/or expenses timetable. The company’s interests in these cash flows are on an after-tax basis since they are part of the shareholders dividends. Additionally, the additional cash flows are of important, because, after analyzing the project while viewing the company as a whole, the additional cash flows are seen as minimal benefits and will show the elevated value to the company if the decision is made to implement the project. B. Since depreciation is not
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Systematic risk results from factors that affect all stocks. The risk of a project from the viewpoint of a well-diversified shareholder. This measure takes into account that some of the project’s risk will be diversified away as the project is combined with the firm’s other projects, and, in addition, some of the remaining risk will be diversified away by shareholders as they combine this stock with other stocks in their portfolios.” (Keown PG, 510) L. According to the CAPM, I would have to say that the systematic risk would be the only risk that is applicable when looking at capital-budgeting purposes. One of the concerns that they will have is about the pertinent measurement of risk the project’s contribution will have on the company. The thought about how bankruptcy can and will affect the company’s and shareholder’s view of what measure of risk is rational. This to me would be an appropriate measure of risk because the cost that comes with bankruptcy that can be damaging. M. Simulation is defined as “a method for dealing with

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