see details below - Essay Example

Only on StudentShare

Extract of sample
see details below

pp2-3) in which the project is either accepted or rejected based on its value addition to the firm and the shareholder wealth. The author showed that the cost of capital of a project is marginalized to maximize the shareholder wealth by including rate of interest, the required rate of return to stock holders, corporate marginal income tax rate, debt to equity ratio and lifetime of the proposed project and the weighted average cost of capital. In a paper written by the same author later (Beranek. 1980. pp404-405) claimed that the Net Present Value rankings of the investment opportunities do not match equity market value unless the projects are of one period duration or are solely equity financed. He established the widely used criteria of accepting a project only if its Present Value is greater than zero and recommended that the project among multiple Mutually Exclusive projects having highest Present Value should be chosen. However, Beranek (1975. pp17) warned of some practical challenges in implementing this technique in capital budgeting due to uneven cash flows, non-straight line income tax & other depreciations, varying methods of repaying the debts, different treatment of shareholders between capital gains & dividends, errors in calculation of weighted average cost of capital in finite lived projects, etc.
His fears were not unreasonable in those years given the current sophistication of ...
Download paper

Summary

In this short essay, the author presents an analysis of the Capital Budgeting and its challenges. The author has further discussed the practical problems associated in cash flow estimation and the recommended methodology to deal with these problems. In the end the author presented some discussion points.
Author : nmosciski

Related Essays

see information below
The frustration of being just two credits shy of graduation and newly married is touched on briefly, but is an important fact that helps clarify his frustration. As he takes us on his journey into the horrors of war, we begin to see a pattern of disorganization from those in authority, and vague answers to the young men's questions about their return home. One incident underscores this disorganization clearly. On a mission to a local Iraqi bank, two soldiers are left standing guard outside. While the rest of the group is inside the bank enjoying a precious few moments in air conditioning,...
3 pages (753 words) Essay
see details below Essay
Marketing experts are specialists that can take better marketing decisions using their imaginations and creativity. Andrews and Smith (1996. pp176) defined three inputs to the creativity of marketing program - problem solving inputs (experience & education), situational factors (time & target pressure) and motivational factors (calculated risk & reward planning). The researchers have emphasized primarily on the knowledge, experience, wisdom and motivation of the individual and not of analysis of loads of marketing research data. The hypotheses by the researchers stress on interaction of the...
3 pages (753 words) Essay
This is a Book report see details below
Jesus as a figure in history is undoubtedly a very important and pertinent topic for today.
...
6 pages (1506 words) Essay
See Below Essay
Being the single dominating undertaking in the market, Gordan Ltd enjoys certain advantageous over the two smaller companies. Gordan Ltd because of its dominance in the bagpipe market is able to bear influence on the market, consumers and its competition.
...
3 pages (753 words) Essay
see details below
This fundamental theory drives the larger frameworks of market research on customer buying behaviours such that minute details of customer choices can be used to enhance the overall value of the products. Ulrich and Ellison (1999. pp656) emphasized that holistic customer requirements can impact even the fundamentals of a firm – the organizational architectures and product architectures. They argued that more holistic requirements from customers will require more integrated product development organizations with some heavyweight project managers that have the capability to translate “hard...
2 pages (502 words) Essay
Got a tricky question? Receive an answer from students like you! Try us!