Capital Budgeting
Luz A comas
Strayer University
Professor: Michael Hamuicka
Financial Management – FIN 534
05/02/2011
Abstract
Capital budgeting is one of the most important areas of financial management. There are several techniques commonly used to evaluate capital budgeting projects namely the payback period, accounting rate of return, present value and internal rate of return and profitability index. Recent studies highlight that financial managers worldwide favor methods such as the internal rate of return (IRR) or nondiscounted payback period (PP) models over the net present value (NPV), which is the model academics consider superior. The term capital budgeting refers to long term planning for proposal …show more content…
d. To examine the sensitivity of this project to the discount rate, management would like to compute the NPV for different discount rates. Create a graph, with the discount rate on the xaxis and the NPV on the y axis, for discount rates ranging from 5% to 30%. For what ranges of discount rates does the project have a positive NPV?
Answers:
a. The NPV of the estimate free cash flow is
NPV =  150 + 36 X 1 (1 1/ (1.12) ^9) + 48 = $57.3 million. 0.12 (1.12) ^10
b. Initial Sales 90 100 110
NPV 20.5 57.3 94.0
Bauer Industries  Free cash flow Projections ( in millions of dollars)               year 0  Year 1  Year 2  Year 3  Year 4  Year 5  Year 6  Year 7  Year 8  Year 9  Year 10  Revenues   110  110  110  110  110  110  110  110  110  110  =Manufacturing expenses   35

Capital Budgeting
18943 Words  76 PagesMODULE 9 CAPITAL BUDGETING THEORIES: Basic Concepts Decision Making Process 2. The first step in the decisionmaking process is to A. determine and evaluate possible courses of action. B. identify the problem and assign responsibility. C. make a decision. D. review results of the decision. Strategic planning 39. Strategic planning is the process of deciding on an organization’ A. minor programs and the approximate resources to be devoted to them B. major programs and the approximate…

Capital Budgeting
2466 Words  10 PagesCAPITAL BUDGETING PROCESS HSM 340 3/30/12 Organizations that decide to issue bonds generally have six steps to go through. Let’s discuss them. The first step is for the issuer to select bond counsel and the underwriter or financial advisor. The issuer and the solicitor work with these participants to structure the financing. Some basic questions need to be answered: (1) what is the purpose of the issue  to fund a capital project, to refund prior debt, or a combination of both (2) what…

Capital Budgeting
2176 Words  9 PagesCapital Budgeting Luz A comas Strayer University Professor: Michael Hamuicka Financial Management – FIN 534 05/02/2011 Abstract Capital budgeting is one of the most important areas of financial management. There are several techniques commonly used to evaluate capital budgeting projects namely the payback period, accounting rate of return, present value and internal rate of return and profitability index. Recent studies highlight that financial managers worldwide favor methods such…

The Factors Affecting Capital Budgeting
7350 Words  29 PagesAbstract Capital budgeting is necessary for large, long term investment projects. However, determining what factors to use in the process can be difficult This research presents the most common procedures used in the capital budgeting process. It provides examples and discusses quantitative as well as qualitative factors in determining which projects to choose. Capital Budgeting Capital budgeting is a process used to determine whether longterm investments, such as capital improvements, research…

Capital Budgeting
1414 Words  6 PagesWeek 4 Discussion Question 1b Introduction Capital budgeting 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…

Capital Budgeting
5568 Words  23 PagesCAPITAL BUDGETING MEANING OF CAPITAL BUDGETING Capital budgeting is the making of long term planning decision for investment fixed assets and their financing. Capital budgeting decision is concerned with current investment that will pay for itself and yield an acceptable rate of return over its life span. Hampton (1992) defines capital budgeting as the decision making process by which firms evaluate the purchase of major fixed assets, including buildings, equipment. It also covers decisions to acquire…

Capital Budgeting Essay
2618 Words  11 PagesCapital Budgeting Introduction Capital budgeting is the process of evaluating and selecting longterm investments that are consistent with the firm's goal of maximizing owner wealth. A firm using capital budgeting, their goal is to see if there fixed income will cover itself for profit. Fixed incomes are things such as land, plant and equipment. When a firm using a machine to produce its good or service. They most of the time what the machine to produce the amount that they paid for the machine…

Capital Budgeting
1735 Words  7 PagesQuestion a What is capital budgeting? Are there any similarities between a firm’s capital budgeting decisions and an individual’s investment decisions? Capital budgeting is the process of analyzing potential additions to fixed assets. Capital budgeting is very important to firm’s future because of the fixed asset investment decisions chart a company’s course for the future. The firm’s capital budgeting process is very much same as those of individual’s investment decisions. There are some steps…

Capital Budgeting
22653 Words  91 Pages2.3. Capital Budgeting This Section includes : Capital Budgeting Process Time Value of Money —Future Value —Present Value Investment Appraisal Techniques —Payback Period —Accounting Rate of Return —Earnings Per Share —Net Present Value —Internal Rate of Return —Net Terminal Value —Profitability Index —Discounted Payback Period Capital Rationing INTRODUCTION : Capital Budgeting is the art of finding assets that are worth more than they cost to achieve a predetermind goal i.e., ‘optimising the wealth…

Capital Budgeting in Reliance Capital
14380 Words  58 PagesCAPITAL BUDGETING AT RELIANCE CAPITAL Specialization: Finance Under the Guidance of: Submitted By: Mr. Debashish Chaudary Prarthana Bajaj Mrs. Archana Singh Nupur Singhal Utsav Goel Taruna Bhadana Arjun…
More about Capital Budgeting

Capital Budgeting
18943 Words  76 Pages 
Capital Budgeting
2466 Words  10 Pages 
Capital Budgeting
2176 Words  9 Pages 
The Factors Affecting Capital Budgeting
7350 Words  29 Pages 
Capital Budgeting
1414 Words  6 Pages 
Capital Budgeting
5568 Words  23 Pages 
Capital Budgeting Essay
2618 Words  11 Pages 
Capital Budgeting
1735 Words  7 Pages 
Capital Budgeting
22653 Words  91 Pages 
Capital Budgeting in Reliance Capital
14380 Words  58 Pages