Notes of a second year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Financial Management by using this notes. If you are struggling with Financial Management use this no...
Main purpose of financial management → maximise shareholder wealth ↑↑↑
1. Profitability index (PI) > 1
2. Net present value (NPV) > 0
How? *choose correct project that CREATES value. 3. IRR > WACC
Capital budgeting process Money = limited resource
Calculate cash flows
Cf0 Cf1 Cf2
i = WACC
Cash flow
Use only relevant cash flows for capital
budgeting
VS
Do not use Accounting Profit
- Easily manipulated
- Includes non-cash flow items like
depreciation which do not influence
investment
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