Ashley Norris, Stephanie Bagdasarian, Debbie Ritchie, Adam Garrido and Nancy Ignacio

QRB 501

September 8, 2014

Patricia Towne

Capital Budgeting Case

Our company has $250,000 to spend on acquiring either Corporation A or Corporation B. In determining which Corporation would be the better buy we will look at the Net Present Value (year 1 through 5) of both Corporations, determine the Internal Rate of Return, and conduct an analysis of the information gathered.

Net Present Value (NPV)

Net Present Value (NPV) is the sum of income and outgoing cash flows based on the present value of the same entity. If the net present value of the investment is positive an investment should be made otherwise, if net present value is negative an investment should not be made. When net present value is zero, it is considered positive. Higher net present value is desirable for investment.

In this case, investors want to know what corporation is a better investment Corporation A or Corporation B. Calculating year one through five for both companies determined NPV for both corporations. Corporation A NPV= $20,979.21 and Corporation B MPV= $48,035.14. Based on the information provided, Corporation B is the better investment as the company has a higher NPV than Corporation A.

Analysis

Based on a careful analysis of the information assembled, team A recommends the purchase of corporation B. this company has a significantly higher net present value (NPV) at $48035.14 compared to corporation A at $20979.21. Corporation B also has a higher internal rate of return (IRR) at 16.94% compared to corporation A at 13.05%. At first glance of the income statement, it appears corporation A is a better potential value with a slightly higher net income at $79822.41 compared to corporation B at $79670.51. After analysis and considering calculations that factor the time value of money, corporation B is the clear choice. NPV is the