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After Completing This Chapter...
The student should be able to:
· Define various sources of capital and the costs of those funds to the firm.
· Select a firm's MARR based on the opportunitycost approach for analyzinginvestments.
·Adjust the firm's MARR to account for risk and uncertainty.
·Discuss the impact of inflation and the cost of borrowed money.
·Use spreadsheetsto developcumulative investmentsand the opportunity cost of capital.
QUESTIONS TO CONSIDER ~
- Many of BP's older sources of oil are now reaching the end of their useful life. How
might this have affected the firm's decision to invest in Tyumen Oil?
- Outside of Tyumen, there are few other oil companies left in Russia for competitors to
buy. How might this have affected BP's decision?
- Where else are the world's largest availableoil reserves located? How does the business
climate in these areas compare to Russia's?
- Most of the largest oil-producing nations are members of OPEC (the Organization of
Petroleum Exporting Countries), but Russia is not. Is this good orbad forBP?
