tools for making financial decisions

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1、CHAPTER17ToolsforMakingFinancialDecisionsInthischapteryoulearntenquantitativemethodsthatmaybeusedtoanalyzefinan-cialalternativesandtochoosethealternativethatisbestforthecompany.Withoutsomequantitativemethoditisoftenhardformanagerstodeterminewhichoptionisbest.Anunderstandingoftheseskillsis

2、anecessityforanymanagerwhohastode-cidewheretoinvestlimitedcapital.Financialdecisionscanbeviewedastheselectionofoneormorealternativesfromapoolofalternatives.Thepoolofalternativesmayincludeindependentalternatives,mutuallyexclusivealternatives,contingentalternatives,andthe“donothing”alternat

3、ive.Independentalternativesarealternativeswheretheacceptanceofonealter-nativedoesnot,inandofitself,precludetheselectionoftheotheralternatives.Forexample,investingpartofyoursurpluscapitalinheavyequipmentdoesnotprecludeinvestingtheremainingportionofyoursurpluscapitalinarealestatedevelopment

4、.Providedthereissufficientcapital,youcaninvestinbothofthesealternatives.Mutuallyexclusivealternativesarealternativeswheretheacceptanceofoneofthealternativesprecludesinvestingintheotheralternatives.Forexample,ifyourcompanyneedstopurchaseasinglebackhoeandhasnarrowedtheselectiondowntothreeba

5、ckhoes,whenyourcompanypurchasesoneofthebackhoes,theneedforabackhoehasbeenfulfilledandthepurchaseofasecondbackhoeisnolongeranoption.Onceyouhaveselectedoneofthethreealternatives,theothertwoalternativesarenolongerviable.Contingentalternativesarealternativesthatmaybeselectedonlyafteran-othera

6、lternativehasbeenselected.Forexample,ifyourcompanyislookingatpurchasingadumptruckandasasecondalternativepurchasingadumpingtrailertobepulledbehindthedumptruck,thepurchaseofthedumpingtrailerisacontingentalternativebecauseforthedumpingtrailertobeuseful,youmustfirstpurchasethedumptruck.The“do

7、nothing”alternativeissimplyanotherwayofsayingthatallofthealternativeshavebeenrejected.425426CHAPTER17Decisionsarelimitednotonlybythetypesofalternativesinthepoolbutalsobyexternalconstraints.Acommonexternalconstraintisthelimitedsupplyofcapital.Withalimitedsupplyofcapi