This is an application of capital budgeting that integrates the projection of a basic cash flow and the computation and analysis of six capital budgeting tools.

Your company is thinking about acquiring another corporation. You have two choices; the cost of each choice is $250,000. You cannot spend more than that, so acquiring both corporations is not an option. The following are your critical data:

a. Corporation A:
1) Revenues = 100K in year one, increasing by 10% each year. 2) Expenses = 20K in year one, increasing by 15% each year. 3) Depreciation Expense = 5K each year.
4) Tax Rate = 25%
5) Discount Rate = 10%

b. Corporation B:
1) Revenues = 150K in year one, increasing by 8% each year. 2) Expenses = 60K in year one, increasing by 10% each year. 3) Depreciation Expense = 10K each year.
4) Tax Rate = 25%
5) Discount Rate = 11%

You must compute and analyze items (a) through (h) using a Microsoft Excel spreadsheet. Make sure that all calculations can be seen in the background of the applicable spreadsheet cells. In other words, leave an audit trail so that others can see how you arrived at your calculations and analysis. Items (i), (j), and (k) should be submitted in Microsoft Word. c. A 5-year projected income statement

d. A 5-year projected cash flow
e. Net Present Value
f. Internal Rate of Return
g. Payback Period
h. Profitability Index
i. Discounted Payback Period
j. Modified Internal Rate of Return
k. Based on items (a) through (h), which company would you recommend acquiring? l. In a 1,050-1,500-word memo, define, analyze, and interpret the answers to items (c) through (h). Present the rationale behind each item and why it supports your decision stated in item (i). Also, attempt to describe the relationship between NPV and IRR. (Hint: The key...

...Week 4 Discussion Question 1b
Introduction
Capitalbudgeting is one of the most crucial decisions the financial manager of any firm is faced with...Over the years the need for relevant information has inspired several studies that can assist firms to make better decisions. These models are assigned so that they make the best allocation of resources. Early research shows that methods such as payback model was more widely used which is basically just determining...

...CapitalBudgeting Process
HSM 340 – Health Services Finances
November 28, 2012
Organizations that decide to issue bonds generally go through a series of steps. Discuss the six steps.
The six steps are: the borrower who is the health care evaluates the capacity of its debts, brings to date its capital plan, and tries to get its house in together, the borrower who is the health care...

...supplier and that the Blue Ridge Mill would instead compete with the Shenandoah Mill by selling on the shortwood market. The question for Prescott was whether these expected benefits were enough to justify the $18 million capital outlay plus the incremental investment in working capital over the six-year life of the investment. Construction would start within a few months, and the investment outlay would be spent over two calendar years: $16 million in 2007 and the...

...CapitalBudgeting
Part I
PV= FV / (1+i)^y PV= present value, FV= future value, i= discount rate, and y= time.
1a) If the discount rate is 0%, what is the projects net present value?
Year Cash Flow Discount Rate Discounted Cash Flow
0 -$400,000 0% -$400,000
1 $100,000 0% $100,000
2 $120,000 0% $120,000
3 $850,000 0% $850,000
Answer: The projects net present value is $670,000
If the...

...CAPITALBUDGETING PROBLEM
BMW Bike is considering building a new plant. Juan Optimist, the company’s marketing manager, is an enthusiastic supporter of the new plant. Mila Pessimist, the company’s chief financial officer, is not so sure that the plant is a good idea. Currently the company purchases its skateboards from foreign manufacturers. The following figures were estimated regarding the construction of a new plant.
Cost of plant 4,000,000
Annual...

...CapitalBudgeting
"CapitalBudgeting is the process of determining whether or not projects are worthwhile. Popular methods of capitalbudgeting include net present value (NPV), internal rate of return (IRR), discounted cash flow and payback period" (Investopedia, Inc.). CapitalBudgeting is an important part of corporations and small businesses because they aid in making key...

...
CapitalBudgeting Analysis Project
MBA 612
The General CapitalBudgeting Process and how it is implemented within Organizations
The general capitalbudgeting process is the tool by which an organization determines its choice of investments through analyzing and evaluating its cash in and out flows. The capital budget...

...
CapitalBudgeting
QRB/501
July 25, 2013
On this paper the reader will be able to find the rationale in the analysis of a specific capitalbudgeting case study. Definitions along with explanations related to capitalbudgeting such as Internal Rate of Return (IRR) and Net Present Value (NPV) will be provided and debriefed. It is extremely relevant to mention that capital...

765 Words |
3 Pages

Share this Document

Let your classmates know about this document and more at StudyMode.com

{"hostname":"studymode.com","essaysImgCdnUrl":"\/\/images-study.netdna-ssl.com\/pi\/","useDefaultThumbs":true,"defaultThumbImgs":["\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_1.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_2.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_3.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_4.png","\/\/stm-study.netdna-ssl.com\/stm\/images\/placeholders\/default_paper_5.png"],"thumb_default_size":"160x220","thumb_ac_size":"80x110","isPayOrJoin":false,"essayUpload":false,"site_id":1,"autoComplete":true,"isPremiumCountry":false,"logPixelPath":"\/\/www.smhpix.com\/pixel.gif","tracking_url":"\/\/www.smhpix.com\/pixel.gif","essay":{"essayId":33070603,"categoryName":null,"categoryParentId":null,"currentPage":1,"format":"text","pageMeta":{"text":{"startPage":1,"endPage":2,"pageRange":"1-2","totalPages":2}},"access":"premium","title":"Application of Capital Budgeting","additionalIds":[],"additional":[],"loadedPages":{"html":[],"text":[1,2]}},"user":null,"canonicalUrl":"http:\/\/www.studymode.com\/essays\/Application-Of-Capital-Budgeting-105564.html","pagesPerLoad":50,"userType":"member_guest","ct":10,"ndocs":"1,500,000","pdocs":"6,000","cc":"10_PERCENT_1MO_AND_6MO","signUpUrl":"https:\/\/www.studymode.com\/signup","joinUrl":"https:\/\/www.studymode.com\/join","payPlanUrl":"\/checkout\/pay\/100244","upgradeUrl":"\/checkout\/upgrade","freeTrialUrl":"https:\/\/www.studymode.com\/signup?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fcheckout%2Fpay%2Ffree-trial\u0026bypassPaymentPage=1","showModal":"get-access","showModalUrl":"https:\/\/www.studymode.com\/signup?redirectUrl=https%3A%2F%2Fwww.studymode.com%2Fjoin","joinFreeUrl":"\/essays\/?newuser=1","siteId":1,"facebook":{"clientId":"306058689489023","version":"v2.2","language":"en_US"},"analytics":{"googleId":"UA-32718321-1"}}

## Share this Document

Let your classmates know about this document and more at StudyMode.com