Budgeting

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Budgeting Model Case Paper February 24, 2014 When incorporating whether to purchase Corporation A or Corporation B, it was easy to choose Corporation B. The reason behind this decision is based on a multitude of things. The income statements are close to one another, and even though the statement is slightly greater in Corporation A than B, that is not the main reason for the decision. The income statement is very similar to a company’s cash flow. With the income statement being marginally greater with company A the cash flow of company B is much greater. Unlike the difference of just under $200 with the net income, the cash flow is greater by more than $3,500 between the two corporations. Cash flow can be defined as “A…show more content…
As such, IRR can be used to rank several prospective projects a firm is considering. Assuming all other factors are equal among the various projects, the project with the highest IRR would probably be considered the best and undertaken first ("Internal Rate Of Return - Irr", 2014).” When looking at both companies discount rates, they are within 1% of one another. The higher the discount rates the better the profit for that particular company. Corporation A has a discount rate of 10%, while Corporation B has a discount rate of 11%. Generally speaking, the higher the discount rate the more profitable that company will become. The similarities between net profit revenue, and internal rate of return is how well they work with one another. Even though both companies have a starting sale of $250,000, they have many differences between them. The NPV and IRR work well with one another in providing the proper information needed in determining whether to buy or pass on a particular business. Both companies are profitable, but as explained earlier, the higher the net profit revenue along with the higher discount rate is a no brainer in the decision process to purchase Corporation B. Net profit revenue uses the rate to help find the internal rate of return. Using the $250,000 as a starting point in both calculations of net profit revenue and internal rate of return

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