capital budgeting decision is whether to lease or buy an asset.

Finance & Accounting
Pages 4 (1004 words)
Download 0
Capital Budgeting Finance and Accounting College Name Student Name The Capital Budgeting Decision In the simplest of terms, capital budgeting decisions can be defined as the set of decisions according to which the firm decides the real assets to be acquired (Brealey, Myers & Marcus, 2001)…


It is very important to study all capital investments options that are available with the firm because of the long-term consequences. The simplest example of a capital budgeting decision is to decide if a firm should buy an asset or lease the same. Buying the asset will result in capital investments while leasing will lead to operational outflow. Capital budgeting methods In order to evaluate the capital budgeting options available with it, a firm can use many of the following ways: Net Present Value: Net present value is the cash the firm will need today as a substitute of making the investment of purchasing the asset (Ross, Westerfield, Jaffe, 2004). If the NPV is positive, this means that the firm will get that cash amount equal to the NPV. The calculation of the net present value takes into account the time value of money along with the cash flow associated with the project throughout the lifetime. A project should be pursued if the net present value is positive. Internal rate of return: This is the discount rate that makes the Net Present Value of a project zero. If the IRR of purchasing the asset is greater than the discount rate, the asset should be brought. Otherwise, the asset should be leased. ...
Download paper
Not exactly what you need?

Related papers

Capital Budgeting
Next section highlights the motivation of top management of William Hill Plc behind this acquisition deal. Subsequent section emphasizes the impact of this acquisition on the capital structure of William Hill Plc. Last section of this article describes the impact of this acquisition on the value of William Hill Plc followed by a conclusion section which leads to the end of this article. Growth…
10 pages (2510 words)
Capital Budgeting
There are various capital budgeting techniques which are used in evaluation of a project so to determine its viability they include; net present value, internal rate of return, profitability index, average rate of return, pay-back period and modified internal rate of return. Guillermo Furniture is faced with three investment situations, which are to continue with the current production, adopt…
2 pages (502 words)
Capital Asset Pricing Model
This model has been heavily criticised and debated over the past decades, and many of the economists are of the opinion that this framework is not adequate enough to assess various risk factors comprehensively. However, none of the opponents could introduce a potential alternative to this concept till date. This paper will critically analyse the applicability of the CAPM in corporate finance…
7 pages (1757 words)
Capital Budgeting Analysis
This shows that the company has improved on the efficiency of the usage of the assets of the company. This is also depicted by an improving asset turnover over the three year period. In 2003, the company generated $1.25 of revenue for every $1 invested in the assets of the company. Moreover, the company is also maintaining a strong control on its administrative and selling expenses; this is…
4 pages (1004 words)
McKenzie Corporation‘s Capital Budgeting
It is of immense importance that one gets the knowledge on the market as well as comprehends the nature of the economy. Based on the calculated values the stockholders are better off with an expansion in the company. This is because the value is higher by $9 million that implies that the firm's value, as well as the profits, would increase.
8 pages (2008 words)
Capital Budgeting PROJECT ANALYSIS
The company’s target market will be the students and friends of the college. The students will be offered the skis at a discounted rate of $250, and the outsiders will purchase the skis at $600. Since the project will be generating revenue, there will be no need of finding other means of funding as the project’s operations are anticipated to generate enough revenue that will be ploughed back…
4 pages (1004 words)
Capital Asset Pricing Model
Usually, the overall volatility of the market is measures through proxies when implementing this model, for instance, the use of FTSE index. Such proxies are not usually the true measures of the market volatility which is at the core of the CAPM assumptions. Therefore, the model estimations from CAPM with use of market proxies for volatility can only predictions that are approximates and not the…
4 pages (1004 words)