Audience

Managers, prospective managers, and anyone else within an organization involved in making business decisions

Prerequisites

An understanding of the principles of business finance

Course Aim

To describe leverage and the cost of capital, and to discuss budgeting methods

Learning Objectives

Describe operating leverage and its implications. Describe financial leverage and its implications. Define cost of capital. Describe how the weighted average cost of funds is derived. Discuss the relationship between the optimal capital structure and stock valuation. Outline the required inputs for capital budgeting. Describe the payback period. Define net present value. Describe the internal rate of return. Explain how to introduce risk into capital budgeting. Define mutually exclusive investments. Describe differences in the timing of cash flows. Calculate the difference in cost.

Topics Covered

Leverage - Operating leverage - Hands-on: Calculating operating leverage - Financial leverage - Total leverage Establishing the Cost of Capital - Component costs - Weighted average - Hands-on: Optimizing capital structure Capital Budgeting - Introducing capital budgeting - Capital budget analysis - Cash flow considerations - Additional considerations Capital Budgeting Methods - The payback period method - The net present value method - The internal rate of return - The modified internal rate of return - Asset replacement decisions

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