Capital Budgeting Scenarios
Shannan Coleman
FIN/486
September 23, 2012
Sal Sadiq

Capital Budgeting Scenarios
Capital Budgeting: Proposal A – New Factory
Proposal A is to build a new factory to decide if this would be a feasible move for the company they need to perform a net present value analysis. To do this they will only need to look at the incremental cash flows, which are as follows: 1. Initial investment of $10 million that will be the cost to build the new factory. 2. Sales of $3 million a year that will result in an increase of $150,000 in gross margin giving the company a 5% gross margin. 3. Value of salvage at the end of the life of the project of $14 million. NPV Computation

The above table shows that the company will have a negative net present value of $3,680,709 for this project. The results being negative shows that if the company decides to build the new factory it will result in a decrease in the wealth of the stockholders invested in the company, which violates the concept of wealth maximization. Take in mind that this analysis was only for a 10-year period since this would be the expected economic life of a new factory....

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CapitalBudgeting Problem
MBA612, Dr. Schieuer
By: Dean Anderson, Terry Sutton,
Sawan Tamang, Karuna Mishra,
2
CapitalBudgeting Process: 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 (Sullivan & Sheffrin, 2003). The capitalbudgeting process involves three basic steps:
1. Identify potential investments
2. Evaluate the set of opportunities, choosing those that create shareholder value, prioritize
3. Implement and monitor the investment projects selected
The capitalbudgeting process begins with an idea and ends with implementation and monitoring. In this particular problem we are focusing on the second step in the process: analyzing the merits of the investment proposal to expand and simultaneously replace old equipment.
There are analytical tools that weigh the merits of investment projects on several dimensions. To decide which investments to undertake, managers need an analytical tool that: (1) is easy to apply and explain to nonfinancial personnel; (2) focuses on cash flow, not...

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CapitalBudgeting Case
Student Name
University of Phoenix
QRB501/Quantitative Reasoning for Business
Date
Professor Name
CapitalBudgeting
The authors of this paper will analyze and interpret the answers to the CapitalBudgeting Case Study presented in Week 6 material of the Quantitative Reasoning for Business course. The paper presents the rationale behind the Net Present Value (NPV) and Internal Rate of Return (IRR) results, describes the relationship between the two of them and explains the reasons behind the acquisition recommendation (e) in the Microsoft Excel spreadsheet.
Analyzing the Results
The case study presents two corporations (A and B) with different revenue values and expenses as well as variable depreciation expenses, tax rates and discount rates. Members of the team calculated both corporations’ cash flows, NPV and IRR values using a Microsoft Excel spreadsheet.
The net present value (NPV) of an investment proposal is equal to the present value of its annual free cash flows less the investment’s initial outlay. Whenever the project’s NPV is greater than or equal to zero, we will accept the project; whenever the NPV is negative, we will reject the project. (Keown, 2014. p. 310) On the other hand Keown (2014) points out that “the internal rate of return is defined as the discount rate that equates the present value of the project’s free cash flows...

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CapitalBudgeting Analysis
Amanda Kocanda, DeUndre’ Rushon,
HuongTran,& Morgan Gibreal
MBA 612, Financial Strategy
October 28, 2014
Bellevue University
Abstract
Within this paper, an overview of the general capitalbudgeting process and how it is implemented within organizations is defined and reported. Key terms related to capitalbudgeting are also defined. Risk analysis based on the Net Present Value (NPV) is performed on the salvage values before and after sales tax values along with the different sale ranges.
Keywords: NPV, NPV Profile, NPV, IRR, multiple IRRs, ranking conflict of NPV vs. IRR, payback period, profitability index, discount rate, cost of capital concept, cash flow analysis, cash flow timeline, conventional cash flow stream, non-conventional cash flow stream, sunk cost, opportunity cost, independent projects, mutually exclusive projects
Overview of the CapitalBudgeting Process
Every business requires some source of funds to maintain operation and competitive advantages. Whether it’s a manufacturing or servicing firm, it requires financing. Financing sources can be obtained through debt, bond issuance, bank loan, equity, and issuance of preferred and/or common stock. The amount of debt and equity builds the firm's capital structure. The firm's corporate or business...

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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)...

...CapitalBudgeting Rules: NPV, IRR, Payback, Discounted Payback, AAR
Categories of Plans
1. Replacement Projects: decisions to replace old equipment – those are among the easier of capitalbudgeting techniques. It is important to decide whether to replace the equipment when it wears out or to invest in repairing the machine.
2. Expansion Projects: These are decisions whether to increase the size of business or not – they are more uncertain than replacement projects.
3. New products and services: These are decisions whether to introduce new products and services or not – they are more uncertain than both replacement and expansion projects.
4. Safety and environmental projects: These are the projects required by governmental agencies and insurance companies – these projects might not generate revenue and are not for profits; however, sometimes it is important to analyze the cash flows because the costs might be very high that they require analysis.
Basic Principles of CapitalBudgetingCapitalbudgeting usually uses the following assumptions:
1. Decisions are based on cash flows not income
2. Timing of cash flows is important
3. Cash flows are based on opportunity cost: cash flows that occur with an investment compared to what they would have been without the investment
4. Cash flows are analyzed on after-tax basis:
5. Financing costs are ignored because they are...

...2.3. CapitalBudgeting
This Section includes :
CapitalBudgeting Process Time Value of Money —Future Value —Present Value Investment Appraisal Techniques —Payback Period —Accounting Rate of Return —Earnings Per Share —Net Present Value —Internal Rate of Return —Net Terminal Value —Profitability Index —Discounted Payback Period Capital Rationing INTRODUCTION : CapitalBudgeting is the art of finding assets that are worth more than they cost to achieve a predetermind goal i.e., ‘optimising the wealth of a business enterprise’. Capital investment involves a cash outflow in the immediate future in anticipation of returns at a future date. A capital investment decidion involves a largely irreversible commitment of resources that is generally subject to significant degree of risk. Such decisions have for reading efforts on an enterprise’s profitability and flexibility over the long-term. Acceptance of non-viable proposals acts as a drag on the resources of an enterprise and may eventually lead to bankrupcy. For making a rational decision regarding the capital investment proposals, the decision maker needs some techniques to convert the cash outflows and cash inflows of a project into meaningful yardsticks which can measure the economic worthiness of projects. CAPITALBUDGETING PROCESS : A Capital...

...Subject: Financial Management
Chapter no. 11: CapitalBudgeting
Chapter No. 11 – CapitalBudgeting
Contents ♦ Capital budgets as opposed to revenue budgets ♦ Different kinds of capital budgets – non-productive assets, improving operating efficiency and capital projects ♦ Choosing capital projects – Conventional and Discounted Cash Flow techniques ♦ Payback period, Discounted payback period, Net Present Value, Internal Rate of Return, Profitability Index methods ♦ Assumptions underlying different methods ♦ Introduction to IRR vs. NPV ♦ Incremental cash flow principle for evaluation of replacement decisions ♦ Numerical exercises on incremental cash flows, NPV, IRR, Discounted payback period and Profitability Index
At the end of the chapter the student will be able to: ♦ Apply incremental cash flow principle to a replacement decision ♦ Apply conventional as well as DCF techniques to capital investment decisions ♦ Determine NPV for a given project and fix the range of rates between which IRR for a given set of projections would lie ♦ Understand how IRR readily offers itself for fixing Equated installments on a loan at a given rate of interest, duration and periodicity like monthly or quarterly
Capital budgets as opposed to revenue budgets
The assumption here is that the students understand the significance of the term...

...CAPITALBUDGETING
AT
RELIANCE CAPITAL
Specialization: Finance
Under the Guidance of: Submitted By:
Mr. Debashish Chaudary Prarthana Bajaj
Mrs. Archana Singh Nupur Singhal
Utsav Goel
Taruna Bhadana
Arjun Bhatnagar
Subhag Pratap Singh
KhusHBoo Kumari
Amity International Business School
Amity University
DECLARATION
I hereby declare that the project entitled “CAPITAL BUDGETINGfrom RELIANCE, submitted to AMITY INTERNATIONAL BUSINESS SCHOOL”, Noida in partial fulfillment of the requirements for the award of the degree “MASTER OF BUSINESS ADMINISTRATION “. The project is an original work done by me and to the best of my knowledge this work is not submitted to any other college or university for the award of any other degree, diploma or fellowship.
Date:
Place:...