Capital Budgeting Analysis Institution Instructor Date Executive Summary The group project is for Westminster College to acquire the Assets of Brainstorm Skis, which will result in full student governance with oversight from Westminster College and the industry Board of Directors…
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 as a means of funding. The project was selected for the following reasons: First, project will be beneficial to college in terms of learning and management to the students because they will be exposed to a real-time work environment. The students of Westminster will use the company for their internships where they will be in a position to learn various management and production skills. The company is anticipated to have a stable management that will perform efficiently and effectively because of support and supervision that will be offered by the College’s Centre for Entrepreneurs and the Company’s Board of Directors. If the project is successful, it will benefit the college first, in terms of revenue generation and second, as part of the college the capital invested back into the business will subsequently also increase the asset value of the college. A careful analysis was carried out to inspect the viability of the project in terms of revenue generation, costs, payback, depreciation, rate of returns, and the projects net present value. Initial costs First, an assessment of the costs and commitments that the project will undertake will be as follows. In acquiring the company, the College will incur Total Capital Cost of $ 15,200.35. This amount is inclusive of the equipment and material cost of $15,000 that are required for the continuation of business. The equipment is valued at current market value, and it includes a $2,400 purchase order contract. The costs also involve the total transportation costs of $200, which will be employed in the moving truck and labor transport costs. The estimated costs for a single product are computed inclusive of all necessary materials and it is found that for each product to be manufactured the company will be spending $108. The company additionally spends an extra $100 for maintenance purposes. Labor costs have been computed as part of the company’s operating costs, and it is estimated for every three students working for the company, 10 hours a day at a rate of $8 will be costing the company a total of $240 dollars or simply $80 dollars each. Depreciation Factoring depreciation into the investment, it estimated that for the initial investment value to have a fair value of $0, it would take approximately 8 years. The company experiences a sharp depreciation in the second year because this is the estimated time when most of the initial investment materials will be depleted. Cash flow A budget analysis for the company is carried for the first eight years when it is estimated that the fair value of investment will be zero. For the eight years, the company is estimating to have minimum revenue of $10,800. The revenue is generated through a customer base comprising of students and friends of the college who will be buying the skis on a year basis. The students are estimated to buy the skis at a price of $400. The price is discounted because the students are also involved in the manufacturing process. The outsiders will be buying the skis at $600. The estimated revenues the company will ...
Cite this document
(“Capital Budgeting PROJECT ANALYSIS Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved from https://studentshare.net/finance-accounting/90617-capital-budgeting-project-analysis
(Capital Budgeting PROJECT ANALYSIS Essay Example | Topics and Well Written Essays - 1000 Words)
“Capital Budgeting PROJECT ANALYSIS Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.net/finance-accounting/90617-capital-budgeting-project-analysis.
Decision making is a crucial thing for operating businesses in a rock solid manner and also securing their long run sustainability. Investment in businesses is risky and their returns have to be estimated in proper manner. In estimating the returns of the long term investment projects, capital budgeting techniques are widely used.
Naturally, the discussion begins with an overview of the ideas put forward in the aforementioned paper. The typical textbook solution to capital budgeting is through computing the Net Present Value (NPV) of a project by using the cost of capital as the discount rate to identify the projects that lead to maximization of the value of the firm.
Topic: Capital Budgeting Name: Course: Instructor’s Name: Date: 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.
However, the decision taken by the stakeholders must have relevant information. Decision making is regarded as successful depending on its ability to sort through all of the data and information to find the appropriate data to make the best decision. Good information must make a difference in a decision and it must also be future oriented (Dayananda, 2002).
Corporate Finance: Traditional Capital Budgeting
Capital Budgeting is the process of planning of long term corporate project related to the investment decision of the organization. The main objective of Capital Budgeting is to allocate firm’s limited resources between competing opportunities (Harrison & John 2010).
In order to be effective both financial and non-financial measures must be able to motivate the managers and employees at various levels of the organization so that the organizational goals can be achieved. Performance evaluation and rewards are the major drivers for effectively motivating individuals in a firm.
The second example was a situation in which a company abandoned an in-house testing program in favor of a free assessment program offered by state employment services using the General Aptitude Test Battery. Hunter et al. assumed that such a strategy would improve test validity (and hence utility) while reducing cost.
Accounting rate of return is one of the simplest techniques for evaluating investments, though not widely applied. It works by determining the return which arises from profits generated from an investment. The main drawback of this method is that it does not take into account the time value for money.
The NPVs include Canadian NPV Project Prospective, and Canadian NPV Parent Prospective RPP. Relative Purchasing Power (RPP) NPV can be used for the long run due to its far-reaching relevance compared to NPV from the
The most commonly used financial process is Capital Budgeting, it is a process in which the investors decide that whether the investment is fruitful or not. The investors or firms may compare two or more different projects and can
5 Pages(1250 words)Essay
GOT A TRICKY QUESTION? RECEIVE AN ANSWER FROM STUDENTS LIKE YOU!
Let us find you another Essay on topic Capital Budgeting PROJECT ANALYSIS for FREE!