Please boost your Plan to download papers

#
Essay sample - Capital Budgeting

Essay

Finance & Accounting

Pages 2 (502 words)

In recent past, capital budgeting has gained popularity as of the main functions of management. Capital budgeting refers the selections of the projects that will yield higher the returns of the company. 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. …

Get more done in less time

Let us write a custom essay on your topic

“Capital Budgeting” with a personal
15% discount.

Order now
## Introduction

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 high-tech production, or act as a broker. Therefore, there is need to ascertain which of the investment will yield the highest returns to the firm. In order to carry out efficient investment appraisal, we will involve four capital budgeting techniques. The techniques that will be applied in this case will include; computation of net present value, internal rate of return, average rate of return and the profitability index. Net present value is capital techniques which uses discounted cash flows. It estimate the present value of future cash out flow and discount the future cash flow using cost of capital of the country ( the cost of equity for unlevered firm and Weighted average cost of capital for the levered firm). After ascertaining the present value of all cash flow of Guillermo furniture, the cash flow are summed up (cash inflows are positive while cash outflows are negative) (Shapiro, 2005). ...

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…

Capital Budgeting. Payback Period. NPV.
Another reason why these decisions are so important is that these decisions involve a large outlay of funds. Therefore, it is necessary that these decisions are taken with due diligence. These decisions cannot be reversed at a low cost. So, any mistake made is very costly to the firm. The capital budgeting process that a manager uses depends on a few factors such as the manager’s level in the…

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…

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.

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…

Portfolio Project: Capital Budgeting Techniques
An investment of, let’s say, $100 if yields $50 every year then it’s payback period will be 2 years because the investment is recovered by the investor after 2 years. This is a very simple method to evaluate an investment but it does not take many complicated factors that play a role in capital budgeting decisions. A disadvantage of this technique is that it is not possible to understand the…

Corporate Finance: Traditional Capital Budgeting
Management use various Capital budgeting techniques to make effective use of these resource to maximize firm’s value (Bennouna, Geoffrey & Marchant 2010). The key objective of an organization is to determine the investment required for expansion of the project, modernize the existing equipment to reduce the costs or to anticipate demand (Bennouna, Geoffrey & Marchant 2010). In order to make…