From the course: Finance Foundations
Join today to access over 22,600 courses taught by industry experts or purchase this course individually.
Example: Buying a car in Hong Kong
- Let's walk through an actual example of a capital budgeting decision. This is a real example that my wife, Ramona, and I went through when we moved to Hong Kong. Should we buy a car? The cost of the car we were considering was 40,000 Hong Kong dollars. Eight Hong Kong dollars is roughly equivalent to one US dollar, so that's about 5000 US dollars. So we're not talking about a great car, just a weekend car so we could save on subway and bus fares for my wife and I and our children. We figured that our annual savings would be about 10,000 Hong Kong dollars. We estimated the useful life of the car to be about five years, and for our family cost of capital, we use 10%. So the capital budgeting decision is this. Should the Stice family by this car? Well, the first thing we did is compute the payback period. If we spend 40,000 Hong Kong dollars to buy this car, and we'll save $10,000 per year, we will recover our investment cost in four years. This is called the payback period. All right,…
Practice while you learn with exercise files
Download the files the instructor uses to teach the course. Follow along and learn by watching, listening and practicing.
Download courses and learn on the go
Watch courses on your mobile device without an internet connection. Download courses using your iOS or Android LinkedIn Learning app.