Imagine now that you are acting as a consultant within your organization and you’re being asked to offer an opinion between two capital investment decisions. You will now draw upon the tools you mastered in this course and present a rationale for your decision in the form of a “memo to the boss.”Remember that capital budgeting is the process by which a firm decides which long-term investments to make. Capital budgeting projects—that is, potential long-term investments—are expected to generate cash flows over several years. The decision to accept or reject a capital budgeting project depends on an analysis of the cash flows generated by the project and its cost.A capital budgeting decision rule should:Consider all of the project’s cash flows Consider the time value of money (the fact that the value of money may depend entirely on when we receive it)Always lead to the correct decision when choosing among mutually exclusive projects
