Case Study on Capital Budgeting

"a. If each project's cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what

I have contacted and met with Brownwood Police Department’s Assistant Chief James Fuller. He has been in this position the last six years and is responsible for the budgetary duties for our agency. The Brownwood Police Department is located in central Texas and is considered a smaller agency with 40 sworn personnel. We are the largest agency within a hundred mile radius. Last year the department operated on a 4.6 million dollar budget. The department serves a population of approximately 20 thousand. Through conversation Assistant Chief Fuller has agreed to assist in my studies with this course and provide information in regards to the budgetary process.

Nevada does not have a bill to create a legislative committee to deal with tax budgeting. Research can prove why the bill (ab143) has a positive outcome in Nevada. The first reason why this bill should be created is that Nevada will have a greater income tax rate which will improve the function of the state government. Second, the local government does not have to worry about dealing with lending the money but using it, but the state does, and they have to maintain a structured budget to be able to provide that money to each government system. Finally, views against this bill are that it can run the state billions of dollars which will affect not only their budget but their economics and business. These two positive reasons are the solution

Healthy capital formation in the health care industry is crucial for organizations to achieve their long-term objectives (Cleverley, Cleverly & Song, 2010). Long-term projects require large investments and cash outlay, which precedes the receipt of cash inflow in future time (Finkler, Calabrese and Ward, 2011). Therefore, organizations tend to predict profitability by evaluating if the long-term projects expected return is great enough to justify the risk (Finkler et al., 2011). This analysis or evaluation is capital budgeting (Finkler et al., 2011). There are three approaches to assess capital budgeting, the payback method, the net value method and the internal rate of return method (Finkler et al., 2011). To understand net value and internal rate of return, acknowledgement of the time value of money is necessary (Finkler et al., 2011). However, the money needed to make these investments needs to come from somewhere. This money is referred to as capital (Finkler et al., 2011). The dominant sources of capital are stock issuance, or charitable donations (equity financing) or loans (debt financing) (Finkler et al., 2011). The choices (equity or debt) made respect to obtaining resources determines the capital structure of the organization (Finkler et al., 2011). A successful capital structure maintains the cost of capital low (Finkler et al., 2011). The cost of capital is the weighted average of the cost common stock, preferred

Therefore, your total current valued percentage return on your investment for ABC = 38.58%. IRR is a percentage that will go with NPV most of the time.

(15 points) Your boss has requested that you analyze two projects for him and pick the one you would recommend for investment. Both projects have the same risk because they are in the same business, and their cash flows are: Project A (Year 0: -$100,000; Year 1: $30,000; Year 2: $40,000; Year 3: $50,000; Year 4: $100,410); Project B (Year 0: -$100,000; Year 1: 0; Year 2: $10,000; Year 3: $10,000; Year 4: $224,990). Which project will you recommend if the discount rate is 35%?

Executive Summary: Tasty Foods has seen phenomenal growth throughout its lifetime in large part due to a continuous development of innovative new products. Although prosperous for Tasty Foods from its birth, this is a business initiative that in the past years, Tasty Foods has not maintained. Consumers are shifting towards a more health conscious lifestyle and until now Tasty Foods has not presented any new products to capture this segment of the market. Abigail developed a product called High Energy to target the health conscious and athletic consumer without taking into account the high fat content per serving. To amend this

Present value of Cash inflow = $2,000,000 / (1+0.125) ^1 + $3,500,000 / (1+0.125) ^ 2 + $13,500,000 / (1+0.125) ^ 3 + $89,750,000 / (1+0.125) ^ 4 + $115,000,000 / (1+0.125) ^ 5 + $120,000,000 / (1+0.125) ^ 6

(1) For the bureaucrat, the goal is to maximize the budget of his bureau. When maximizing, attention is paid to the conditions of costs and demand, as well as under the constraint that the budget should be equal to or exceed the minimum amount of total costs at an equilibrium

Capital budgeting is one of the most important decisions that face a financial manager. There are many techniques that they can use to facilitate the decision of whether a project or investment is worthy of consideration. The four that will be covered within this paper are Payback Rule, Profitability Index, IRR and NPV. Each method has its strength and weaknesses and they will be examined to determine which method is superior to the rest.

The following paper analyzes a project from financial perspectives using the capital budgeting techniques like Net Present Value (NPV) and Internal Rate of Return (IRR).

an investment in working capital is returned in full at the end of a project’s life, while an investment in depreciable assets has no residual value.

Investment Appraisal or so called capital budgeting is a technique used to identify several investment’s impacts on a business by considering stakeholder’s value in both private sector and public sector to justify the viability of project. The primary purpose of an investment appraisal model is to measure project related costs, using basic methods such as Net Present Value (NPV), Internal Rate of Return (IRR), Accounting Rate of Return (ARR) and the Payback Method (PB). Considerably, discounted cash flow techniques such as Net Present Value (NPV) involves determining the sum of the present values of all project’s cash flows[1]. Investment therefore is favorable in term of positive present value as the highest net present value program should be adopted[2]. Similarly, Internal Rate of return (IRR) is referred as the discount rate at which the present value of costs equals the present value of benefits when NPV is zero. Generally, projects with higher IRR values are preferred as this will give positive NPV at high discount rates, leading to the assumption of same results for both NPV and IRR method[3]. Whereas payback (PB) is another investment appraisal technique which is applied if the project is able to recoup the original investment within a predetermined period, Accounting Rate of Return (ARR) is defined as “Average Annual Net Profit After Tax divided by Average Investment”[4]. Theoretically speaking, all of listed investment appraisal methods are applied within an

This chapter introduces the significance of capital budgeting decision and its relation with other aspects of finance. Thereafter, it describes the current condition of power generation projects in India. Later it throws light on the need, scope and objectives of this research related to risk and capital budgeting practices in Indian public and private sector power projects. The organization of research and its limitations are discussed at the end of the chapter.

Harold Averkamp, a university lecturer explains capital expenditure as the amount spent to either obtain or improve a long-term asset such as a building. This cost is recorded in an account that is classified as Property. Apart from the cost of land ever other cost is charged to the depreciation expense over the useful life period of the asset.