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CFA Level 1 - Capital Budgeting Basics
A. CAPITAL BUDGETING AND THE COST OF CAPITAL
I. Basics

What is Capital Budgeting?
Capital budgeting can be defined simply as the process of planning for projects on assets with cash flows of a period greater than one year.

These projects can be classified as:
Replacement decisions to maintain the business
Replacement decisions for cost reduction
Existing product or market expansion
New products, markets or mandatory investments

Additionally, projects can also be classified as mutually exclusive or independent:
- Mutually exclusive projects are potential projects that are unrelated, and any combination of those projects can be accepted.
- Independent projects indicate there is only one project among all possible projects that can be accepted.

 The Importance of Capital Budgeting
Capital budgeting is important for many reasons:
- Since projects approved via capital budgeting are long term, the firm becomes tied to the project and loses some of its flexibility during that period.
- When making the decision to purchase an asset, managers need to forecast the revenue over the life of that asset.
- Lastly, given the length of the projects, capital-budgeting decisions ultimately define the strategic plan of the company.

Next: CFA Level 1 - The Cost of Capital

Table of Contents
1) CFA Level 1 - Chapter 11: Corporate Finance
2) CFA Level 1 - Agent-Principal Relationship
3) CFA Level 1 - Capital Budgeting Basics
4) CFA Level 1 - The Cost of Capital
5) CFA Level 1 - Cost of Retained Earnings
6) CFA Level 1 - Cost of Newly Issued Stock
7) CFA Level 1 - Target Capital Structure
8) CFA Level 1 - Marginal Cost of Capital
9) CFA Level 1 - Factors Affecting the Cost of Capital
10) CFA Level 1 - Payback Period
11) CFA Level 1 - Net Present Value (NPV) and the Internal Rate of Return (IRR)
12) CFA Level 1 - The NPV Profile
13) CFA Level 1 - Cash Flow and NPV Applications
14) CFA Level 1 - Advantages and Disadvantages of the NPV and IRR Methods
15) CFA Level 1 - NPV Analysis amd Project Decisions
16) CFA Level 1 - Comparing Projects With Unequal Lives
17) CFA Level 1 - Types of Risk
18) CFA Level 1 - Risk-Analysis Techniques
19) CFA Level 1 - Security Market Line and Beta Basics
20) CFA Level 1 - Factors that Influence a Company's Capital-Structure Decision
21) CFA Level 1 - Influences on Business and Financial Risk
22) CFA Level 1 - Operating Leverage and its Effects on a Project's Expected Rate of Return
23) CFA Level 1 - Financial Leverage
24) CFA Level 1 - Sales and Leverage
25) CFA Level 1 - Effects of Debt on the Capital Structure
26) CFA Level 1 - Tax and Bankruptcy Costs and Leverage Theories
27) CFA Level 1 - The MM Capital Structure vs. The Tradeoff Theory of Leverage
28) CFA Level 1 - Signaling Prospects Through Financing Decisions
29) CFA Level 1 - Degree of Total Leverage
30) CFA Level 1 - CFA Level 1 - Dividend Theories
31) CFA Level 1 - Dividend Growth Rate and the Effect of Changing Dividend Policy
32) CFA Level 1 - Setting Dividends
33) CFA Level 1 - Dividend Payment Procedures
34) CFA Level 1 - Stock Dividends and Repurchases
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