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? YearCash FlowDiscount RateDiscounted Cash Flow

0-$400,0000%-$400,000
1 $100,0000% $100,000
2 $120,0000% $120,000
3 $850,0000% $850,000
Answer: The projects net present value is $670,000
If the discount rate is 2%, what is the projects net present value? YearCash FlowDiscount RateDiscounted Cash Flow
0-$400,0002%-$400,000
1 $100,0002% $98,039
2 $120,0002% $115,340
3 $850,0002% $800,974
Answer: The projects net present value is $614,353.45
If the discount rate is 6%, what is the projects net present value? YearCash FlowDiscount RateDiscounted Cash Flow
0-$400,0006%-$400,000
1 $100,0006% $94,340
2 $120,0006% $106,800
3 $850,0006% $713,676
Answer: The projects net present value is $514,815.59
If the discount rate is 11%, what is the projects net present value? YearCash FlowDiscount RateDiscounted Cash Flow
0-$400,00011%-$400,000
1 $100,00011% $90,090
2 $120,00011% $97,395
3 $850,00011% $621,513
Answer: The projects net present value is $408,997.46
With a cost of Capital of 5%, what is this project's modified internal rate of return (MIRR)? The formula is: MIRR = (-FV/PV)1/n-1-1
Answer: For this project, the projected MIRR is 42.72%
My next task was to build a graph and explain what is showed. Answer: The graph showed the net present value decreased as the discount rate increased. The net present value crosses the horizontal line at approximately 42%, just before the Modified internal rate of return of 42.72%. 1b) What is the projects internal rate of return?

...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 the length of time required for the firm to recover the outlay of cash and the return the project will generate. Other models just basically employed the concept of the time value of money. We have seen that more current models are attempting to include their analysis factors that might significantly affect the decision made by the manager (Cooper et.al, 2001).
Recent studies have shown that capitalbudgeting decisions are highly important and most times complex. There are several reasons associated with the use of capitalbudgeting. First, capital expenditures require the firms to outlay large sums of funds to initialize the project... Second, firms need to formulate ways that will generate and repay these funds that were initially outlayed. Finally, having a good sense of timing , when using this model is also very critical when making financial decisions. Several alternatives models are commonly used when...

...Capitalbudgeting (or investment appraisal) is the planning process used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures.[1]
Many formal methods are used in capitalbudgeting, including the techniques such as
* Accounting rate of return
* Payback period
* Net present value
* Profitability index
* Internal rate of return
* Modified internal rate of return
* Equivalent annuity
* Real options valuation
These methods use the incremental cash flows from each potential investment, or project. Techniques based on accounting earnings and accounting rules are sometimes used - though economists consider this to be improper - such as the accounting rate of return, and "return on investment." Simplified and hybrid methods are used as well, such as payback period and discounted payback period.
Contents [hide] * 1 Net present value * 2 CapitalBudgeting Definition * 3 Internal rate of return * 4 Equivalent annuity method * 5 Real options * 6 Ranked Projects * 7 Funding Sources * 8 Need For CapitalBudgeting * 9 External links and references |
Net present value[edit]
Main article: Net present value...

...undertake (capitalbudgeting) and how will investment and finance decisions affect the firm's value (valuation)?
How can cash be raised for the required investments? This is known as the financing decision' (cost of capital, capital structure and leasing).
How will the firm manage its day-to-day cash and financial affairs (short-term financing and net working capital)?
The CapitalBudgeting Mini Case presents a financial decision of acquiring another corporation. Two choices are available; Corporation A and Corporation B, the cost of each choice is $250,000, and acquiring both corporations is not an option. The primary goal of any company is to create value for its shareholders and as such, the most important job of the financial manager is to create value from the company's capitalbudgeting,
Financial managers must be particularly aware of the timing of cash flows (the time value of money') and associated risks. This financial decision-maker will use projected cash flows to determine whether acquiring Corporation A or Corporation B (i.e. NPV and IRR) is the best choice. If acquisition does not generate positive cash flow, the company is effectively providing finance for the acquired corporation.
CapitalBudgeting Decisions
Many business opportunities involve sacrificing current earnings for...

...CAPITALBUDGETING
The process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing. Oftentimes, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark.
Also known as "investment appraisal."
Generating investment project proposals consistent with the firm’s strategic objectives;
Estimating after-tax incremental operating cash flows for the investment projects;
Evaluating project incremental cash flows;
Selecting projects based on a value-maximizing acceptance criterion; and
Continually reevaluating implemented investment projects.
* Since CASH is central to all decisions of the firm, the expected benefits to be received from the project is expressed in terms of Cash Flows and not income flows. Cash flows should be measured on an incremental, after-tax basis.
* a) include all cash flows that occur during the life of the project
* b) consider the time value of money
* c) incorporate the required rate of return on the project
* The minimum rate of return needed to induce investors or companies to invest.
* The minimum acceptable rate of return at a given level of risk. Different investors have different reasons for choosing their required returns. Normally, it is determined by a person's or institution's cost of...

...
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 process is vital to the organizations mere existence. Capitalbudgeting decisions can mean the difference between the company’s survival and its extinction, especially in today’s volatile global economic environment. The goal of survival for an organization is to create the maximum amount of shareholder wealth. To achieve positive shareholder wealth, the organization must maximize its share price through creating a positive net present value. The organization cannot achieve shareholder wealth without the use and understanding of a solid capital budget process (Megginson, Smart, Graham, 2010).
Capitalbudgeting analysis is really a test to see if the benefits (cash inflows) are large enough to repay the company for three things the cost of the asset, the cost of financing the asset (interest) and a rate of return (Investopedia, n.d.).
The capital budget process involves three basic steps:
1)...

...There are a number of techniques of capitalbudgeting. Some of the methods are based on the concept of incremental cash flows from the projects or potential investments. There are some other techniques of capitalbudgeting that are based on the accounting rules and accounting earnings.
However, the techniques based on the accounting rules are considered to be improper by the economists. The hybrid and simplified techniques ofcapitalbudgeting are also used in practice. Capitalbudgeting is the process of managing the long-term capital of a firm in the most profitable way.
The prime task of the capitalbudgeting is to estimate the requirements of capital investment of a business. The capital allocation to various projects depending on their needs and selection of proper project for the business also fall under the canopy of capitalbudgeting concept.
Some of the major techniques of capitalbudgeting are:
* Profitability index
* Net present value
* Modified Internal Rate of Return
* Equivalent annuity
* Internal rate of return
Profitability Index
The profitability index is a technique of capitalbudgeting. This holds the relationship between the investment and a proposed...

...CapitalBudgeting
Introduction
Capitalbudgeting decisions are the most important investment decisions made by management. The objective of these decisions is to select investments in real assets that will increase the value of the firm. (Kidwell and Parrino, 2009)
Project Classification Types
* Replacement projects are expenditures necessary to replace worn-out or damaged equipment.
* Cost reduction projects include expenditures to replace serviceable but obsolete plant and equipment.
* Safety and environmental projects are mandatory investments that may not produce revenues.
* Expansion projects increase the availability of existing products and services
Steps in CapitalBudgeting
1. Sequence of Project Valuation
* Project cost must be determined.
* Management must estimate the expected cash flows.
* Risk of projected cash flows must be estimated.
* Given the risk of projected cash flows, the firm must determine an appropriate discount rate.
* Expected cash flows must be converted to present-values.
* Compare present-value of expected cash inflows with the required outlay.
2. Cash Flow Estimation
* Expected cash inflows and outflows must be estimated within a consistent and unbiased framework
Capitalbudgeting techniques help management systematically analyze potential business opportunities in...

...
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 capitalbudgeting allows the companies to analyze one or more projects to decide eventually which project or piece of equipment would be most profitable or suitable (economically), according to the needs and the capacities the company has.
Before entering into the analysis a little further and into the company chosen let us define what Net Present Value really is. According to Business Dictionary (2011) the definition of NPV is “The difference between the present value of the future cash flows from an investment and the amount of investment. Present value of the expected cash flows is computed by discounting them at the required rate of return.” “NPV is considered as one of the two discounted cash flow techniques, the other one is the Internal Rate of Return”. There are different types of net present values such as the negative net present value (worse return), the positive present value (better return), and the zero net present value that basically means that the original amount...