Assignment 3-Capital Budgeting Analysis

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Running header: CRUNCHING THE NUMBERS

CRUNCHING NUMBERS Abstract The public sector faces complex challenges when allocating financial resources in the most productive way in accordance with government policies. The capital budget process in the public sector explores a variety of objectives to determine the best financial impact for the federal, state, and local government entities. The process chooses capital projects from a number of potential options based on several factors such as payback periods, internal rate of return, and the net present value for each project. Each factor should work together effectively to ensure the greatest return in the least amount of time. This paper will focus on determining the best financial
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As such, Project A’s IRR was calculated to be 5% and Project B is 16%. IRR Calculation: If higher than the discount rate of 12%, it is the best option for return on investment. (Enter values from first year costs to last year costs as the value and .12 as the guess) Net Present Value (Project A and B) Ehrhardt and Brigham (2011) defined the net present value (NPV) as the present value of a project's cash inflows minus the present value of its cost. The result tells the firm how much the project will or has contributed to the firm’s wealth. As such, the larger NPV the more value the project adds, hence the higher the stock’s prices (Brigham & Ehrhardt, 2011 ). The net present value (NPV) compares the value of the current dollar to the value of future dollars. When conducting analysis it is essential to ensure the project presents a positive number to be accepted. NPV is used to determine profitability of an investment or project in capital budgeting. This can be calculated by comparing initial costs of the project to the total value of future income. Excel is a benefit to this calculation again using it to determine the net present value. The discount rate would be used to represent the minimum rate of return. Once the calculations have been placed into the program, project A yields a NPV of $-$835,344.48 and project B $356,519.8

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CRUNCHING NUMBERS Recommendations Taking into consideration the calculated payback period, internal rate return and net present
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