Working Capital Management and Capital Budgeting
Alexis A. Stoute
University of Phoenix
Finance for Business
FIN/370
Terry Dowdy, PhD
August 02, 2010

Working Capital Management and Capital Budgeting
This week’s assignment focused on Working Capital Management and Capital Budgeting. As per the class syllabus, students were to formulate responses for questions 4-6A (Chapter 4) and 5-1A, 5-4A, 5-5A, and 5-6A (Chapter 5) from the book Financial Management: Principles and Applications. In this paper I will briefly discuss the answers that I formulated for each question. For question 4-6A (Chapter 4) we were instructed to prepare a cash budget for the Sharpe Corporation, which was to cover the first seven months of 2004. There was additional information given to help prepare the cash budget such as rent and other expenditures, how suppliers are paid, and information on short-term financing. This as well as additional information was necessary for the completion of the cash budget. Students were also asked to answer the second part of question 4-6A: b. Sharpe has $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes (Keown, Martin, Petty, & Scott, 2005)? According to the cash budget analysis, the Sharpe Corporation will have funds of $222,009 in July to repay the notes. After the notes are paid the Sharpe Corporation will have $22,009 left, which is well over the balance of $15,000 that must be maintained on a monthly basis. In Chapter 5 students were instructed to formulate answers for questions 5-1A, 5-4A, 5-5A, and 5-6A. While my work was done separately, and submitted via my individual forum on OLS, I will briefly discuss my answers in the next few paragraphs. Question 5-1A (a, b, c, d) required students to formulate the compound interest for different amounts. Using the ratio indicated in my work I came up with the following answers: a....

...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...

...
CapitalBudgeting Case
Learning Team A
QRB/501 Quantitative Reasoning for Business
July 29, 2014
Dr. Larry Olanrewaju
CapitalBudgeting Case
Our Company has the opportunity to obtain another corporation. We have to choose between two companies, Company A or Company B. We only have $250,000 to spend to purchase the companies. Because of this financial constraint, acquiring both corporations is not an option. Therefore, we must determine what company would be better to acquire.
Company A
Company A started with $250,000 and increased in revenue by 10% each year up to 5 years. Therefore, at the end of 5 years the revenue totaled $146,410. We subtracted the annual expenses from the yearly revenue to determine the profit before depreciation or the profit before the drop in value. Depreciation moves the cost of an asset to depreciation expense during the asset's useful life. Depreciation expense results when the purchase price of a fixed asset is reduced over time, or its useful life (Keown, Martin, & Petty, 2014). In Corporation A, the Depreciation expense is $5,000 a year. We deducted the $5,000 year depreciation from the profit to obtain the profit before tax. The tax rate of 25% was deducted from the profit before tax to find the net income. The 5 Year Projected Cash Flow is the net income plus the $5,000 annual depreciation amount.
According to Brealey, Myers, & Marcus (2007), there are at least six...

...
A STUDY ON WORKINGCAPITALMANAGEMENT
With special reference to
RASHTRIYA ISPAT NIGAM LIMITED, VISAKHAPATNAM
A Project Report Submitted to
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY, KAKINADA
In partial fulfillment of the Requirement
For the award of the degree of
Master of business administration
By
mr. k. chitti babu(12761E0020)
Under the guidance of
Dr.T.Rajasekhar,
MBA,M.Sc.,M.Phil,Ph.D,RCMS(UOH)Associate Professor
school OFMANAGEMENT STUDIES
LAKIREDDY BALI REDDY COLLEGE OF ENGINEERING(autonomous)
(Approved by AICTE. New Delhi Affiliated to J. N.T.U, Kakinada)
MYLAVARAM, KRISHNA DISTRICT
2012 – 2014
DECLARATION
I hereby declare that the project report entitled "A STUDY ON WORKINGCAPITALMANAGEMENT AT RASHTRIYA ISPAT NIGAM LIMITED, VISAKHAPATNAM” is a record of independent research work and has been carried out by me during the period of my study at LAKIREDDY BALIREDDY COLLEGE OF ENGINEERING, Mylavaram under the guidance of Dr.T.Rajasekhar, Associate Professor in SCHOOL OF MANAGEMENT STUDIES and this work has not been submitted elsewhere for any degree or diploma.
Date: (K. CHITTI BABU)...

...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
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...

...
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)...

...FIN3101 Corporate Finance Practice Questions
Topic: CapitalBudgeting
1.
Marsh Motors has to choose one of two new machines. Machine 1 costs
$180,000, has a 3 year life and EBIT of $108,750 per year. Machine 2 costs
$360,000, has a life of 6 years and EBIT of $122,875 per year. Assume straight
line depreciation over the life of the machine. Marsh is a levered firm with a debt
equity ratio of 0.40. The beta of equity is 1.125 while the beta of debt is 0.25. The
market risk premium is 8 percent and the risk free rate is 5%. The corporate tax
rate is 20%.
a.
b.
c.
2.
What is the firm’s cost of equity capital?
What is the firm’s weighted average cost of capital?
Which machine should Marsh purchase?
Advanced Technology is considering investing $38m to develop a gold mining
site. The average equity beta of similar firms in the industry is 0.88. The market
risk premium is 7% and the nominal risk free rate is 4%. Inflation is expected to
be 2%.
a.
b.
Suppose there is a 20% chance of a low output of $2m and an 80% chance
of a high output of $6m in the first year. If the output is low in the first
year, there is a 70% chance that output will stay at $2m and a 30% chance
that output will stay at $4m per year for the rest of the project’s life.
However if the output is high in the first year, there is a 80% chance that it
will stay at $6m and a 20% chance that it will stay at $3m per year...

...
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...

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