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Chapter Summary

Section 25.1: Capital Investment Decisions​

  • Capital investments are long-term, strategic decisions
  • Focus on incremental cash flows, not accounting profit
  • Consider both quantitative and qualitative factors

Section 25.2: Payback and ARR​

  • Payback measures liquidity; ARR measures accounting return
  • Useful for quick screening, but ignore time value and post-payback cash flows

Section 25.3: Time Value of Money​

  • Discount future cash flows to present value using cost of capital
  • Use PV, FV, annuity formulas or calculator functions

Section 25.4: Discounted Cash Flow Models​

  • NPV and IRR are primary decision tools
  • NPV measures value added; IRR provides rate of return
  • PI useful for capital rationing; discounted payback adds risk insight

Section 25.5: Comparing Methods​

  • Non-time-value methods (payback, ARR) are simple but limited
  • Time-value-based methods (NPV, IRR, PI) provide more accurate evaluation

Section 25.6: Payback and Discounted Payback​

  • Payback assesses liquidity; discounted payback adds time value
  • Projects should meet payback criteria and have positive NPV

Section 25.7: Tax, Depreciation, Working Capital​

  • Include tax effects, depreciation shields, working capital changes
  • Terminal cash flows include salvage value and working capital recovery

Section 25.8: Luxembourg SME Investment Decision Making​

  • Estimate cost of capital, consider financing structure, assess risk
  • Work closely with banks and advisors; perform post-investment reviews

Section 25.9: Government Grants and Incentives​

  • Luxembourg offers aid for digitalization, sustainability, innovation
  • Incorporate grants into cash flows; ensure compliance