Nguyen Thanh Tuan – MBA06043
Dr. Ann Ericson
Financial Management
18 January 2013

An arguable capital budgeting decision in Intel’s Financial Plan 2013 Thursday 17 January 2013, Thomson Reuters, the world’s largest international multimedia news agency, has highlighted some concerns about Intel’s Financial Plan 2013. Noel Randewich, the report’s writer, thought Intel Corporation's current-quarter revenue forecast disappointed Wall Street analysts. The reason behind is Intel will spend more $2 billion of its increased spending on expanding researching facility. This action is a controversial one because it has feedbacks from different sides. Essentially, one major worry is probably that the predicted personal computer market size is going to be smaller in 2013 while Intel lays a bet on very huge investment. However, Chief Executive Paul Otellini said that modern long-term assets could help Intel maintain the lowest cost as possible. On the other hand, some other Wall street analysts advocate Intel’s decision due to fact that it would be a plus for company ‘s operating efficiency.

Intel was founded in 1968 with a vision for semiconductor memory products. It is best known for producing the microprocessors found in many personal computers. The company also makes a range of other hardware including network cards, motherboards, and graphics chips. Yet Intel became reputed after Wintel alliance with Microsoft Corporation, which enabled Intel to possess 80% of personal computer chip market.

Back to the new event in the 2013 first quarter, the $2 billion investment on long-term assets belongs to capital budgeting decision type. Undoubtedly, it is very important decision because Intel has to face a great number of effects. The first clear limitation could be that Intel would run the operation under its capacity due to unused space of new plant as well as to the reduced market size. At the same time, another stumbling block might be that its higher fixed cost...

...CapitalBudgetingDecision Process
1. Introduction
The maximization of shareholder wealth can be achieved through dividend policy and increasing share price of the mark value. In order to derive more profits, our company shall invest potential investments which always cover a number of years. Those investments involve substantial initial outlay at the outset and the process. The management is responsible to participate in the process of planning, analyzing, evaluating, selecting and making decisions to allocate the limited resource to those investments. This is called capitalbudgetingdecision process. Budgeting acts as an important managerial tool in practice. It is budget for the major capital investment such as purchase of land and building, plant and machine, investing new product or market. In modern competing environment, the company shall go ahead to make those investments in order to survive and profitability. A good evidence is Apple which globally introduced iPhone and acted as a leading market position. Denzil & Antony (2007) stated that “Those decisions shall take account of the amount, timing and associated risk of expected company cash flow”. Therefore, Capitalbudgetingdecision process is within the prospective of financial management.
2. The Aims...

...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...

...Chapter 9 Cost of Capital
1. What is the WACC?
a. Weighted Average Cost of Capital- most firms employ different types of capital, and because of their differences in risk, the difference securities have different required rates of return. Typically=debt, preferred stock and common equity.
2. What precautions must we take when measuring the WACC to use for capitalbudgetingdecisions (future investment)?
b. The company’s current and recent past book and market value structures. As well as rates of returns.
3. What do we mean by "target capital structure"? (this is in the Web appendix to Ch. 11)
4. What is the "marginal cost of capital"?
5. Know how to calculate the cost of debt, before and after taxes, and then also including flotation costs.
6. Know how to calculate the cost of common stock using the Gordon growth model (the DCF method) and the CAPM, and how to adjust the Gordon model for flotation costs.
7. Know how to calculate the cost of preferred stock, with and without flotation costs.
8. Know how to calculate the market value weights for the WACC.
9. Explain how we adjust a project's WACC for risk.
10. Understand the issues which arise when using the CAPM for calculating the cost of equity.
11. Be able to measure the cost of retained earning, and also be able to explain why retained earnings...

...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 capitalbudgetingdecisions 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...

...CapitalBudgeting:
Decision Criteria
Brigham and Daves Ch. 12
Christopher B. Alt CFA PhD
What Is CapitalBudgeting?
Analysis of potential additions to fixed
assets
Long-term decisions typically involving
large $ expenditures
Making the ‘right’ capitalbudgetingdecisions is enormously important to a
firm’s future
Should we
build this
plant?
All rights reserved - Christopher B. Alt
2
Key Steps in CapitalBudgeting
Estimate CFs (inflows & outflows)
Assess riskiness of CFs
Determine the appropriate cost of
capital
Find NPV and/or IRR
Accept if NPV > 0 and/or IRR >
WACC
All rights reserved - Christopher B. Alt
3
Independent vs. Mutually Exclusive
Projects
Independent projects: if the cash flows
of one are unaffected by the
acceptance of the other
Mutually exclusive projects: if the cash
flows of one can be adversely
impacted by the acceptance of the
other
All rights reserved - Christopher B. Alt
4
Normal vs. Nonnormal Cash Flow
Streams
Normal cash flow stream: Usually,
cost (negative CF) followed by a series
of positive cash inflows. One change
of signs.
Nonnormal cash flow stream: Two or
more changes of signs. Most common:
Cost (negative CF), then string of
positive CFs, then cost to close project.
Examples include nuclear power plant,
strip mine, etc.
All rights...

...
According to Attrill and Mclaney, 2009, there are four (4) approaches to capitalbudgeting. The net present value (NPV) is one of such and is a summation of all discounted cash flows(Present Value) associated with whichever project(s) are undergoing appraisal.
Every appraisal method have decision rules, examples include the Payback Period(PBP) which stipulates the approval of projects that pays back the initial investments within a specific period. For this method (Net Present Value) to be most effective, from the pool of prospective projects under review, only projects that produce a positive net present value should be undertaken, and projects that produce negative figures should be ignored and in instances where mutually exclusive projects are involved, management should thus undertake the project that generated the highest positive net present value. There are however two types of projects that can be undertaken, these are independent projects that are not affected by the cash flows of other projects, and on the other hand is the mutually exclusive projects that means that there are two ways at accomplishing same results.
Investment involves making an outlay of something of economic value, usually cash, at one point in time, which is expected to yield economic benefits to the investor at some other point in time. (Atrill and Mclaney, 2009). Among all the methods of appraisals and despite the fact that this method is...

...Mill as a shortwood 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 remaining $2 million in 2008. When the new woodyard began operating in 2008, it would significantly reduce the operating costs of the mill. These operating savings would come mostly from the difference in the cost of producing shortwood on-site versus buying it on the open market and were estimated to be $2.0 million for 2008 and $3.5 million per year thereafter. Prescott also planned on taking advantage of the excess production capacity afforded by the new facility by selling shortwood on the open market as soon as possible. For 2008, he expected to show revenues of approximately $4 million, as the facility came on-line and began to break into the new market. He expected shortwood sales to reach $10 million in 2009 and continue at the $10 million level through 2013. Prescott estimated that the cost of goods sold (before including depreciation expenses) would be 75% of revenues, and SG&A would be 5% of revenues.
This case was prepared by Professor...

...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 discount rate is 2%, what is the projects net present value?
Year Cash Flow Discount Rate Discounted Cash Flow
0 -$400,000 2% -$400,000
1 $100,000 2% $98,039
2 $120,000 2% $115,340
3 $850,000 2% $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?
Year Cash Flow Discount Rate Discounted Cash Flow
0 -$400,000 6% -$400,000
1 $100,000 6% $94,340
2 $120,000 6% $106,800
3 $850,000 6% $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?
Year Cash Flow Discount Rate Discounted Cash Flow
0 -$400,000 11% -$400,000
1 $100,000 11% $90,090
2 $120,000 11% $97,395
3 $850,000 11% $621,513
Answer: The projects net present value is $408,997.46
With a cost of Capital of...