Acct 571
Case Study for Corporations A and B
Within this case study the writer will be analyzing and interpreting answers for the Capital Budgeting Case Study. The information obtained was provided in the Week 6 material of the Quantitative Reasoning for Business course. Throughout the paper the writer will cover the rationale behind the Net Present Value (NPV) and the Internal Rate of Return (IRR) results. The information obtained will show the relationship between the two and provide an explanation behind the acquisition recommendation within the Excel spreadsheet.
Analyzing the Results
This case study describes two corporations (A and B) who have different revenue values and their variable depreciation expenses, tax and discount rates. The writer has calculated companies’ cash flow, NPV and IRR value utilizing a Microsoft Excel spreadsheet. By definition the net present value (NPV) shows the difference between the present value of the future cash flows from an investment as well as the amount of an investment. (Business Dictionary, 2014) whereas the using the IRR method the cash flow can be reinvested.
Based on the calculations in the provided in the case study Corporation A had an NPV of 20,979.41 with the IRR value of 13.05%. Corporation B had an NPV value of 40,525.02 with the IRR value 16.94%. Keep in mind both Corporations had a positive NPV result but, Corporation B accumulated twice as much value than Corporation A this was due to the cash flow. Corporation B’s IRR value surpassed Corporation A’s rate.
After reviewing all information and calculations the acquisition could occur with the initial layout of $250,000 and based on the data provided in the excel spreadsheet the recommendation is the company should purchase Corporation B. This decision was base on the data which shows Corporation B’s NPV and IRR rates are significantly higher and is the better investment option. Corporation B will definitely be more profitable to the organization by executing this
Within this case study the writer will be analyzing and interpreting answers for the Capital Budgeting Case Study. The information obtained was provided in the Week 6 material of the Quantitative Reasoning for Business course. Throughout the paper the writer will cover the rationale behind the Net Present Value (NPV) and the Internal Rate of Return (IRR) results. The information obtained will show the relationship between the two and provide an explanation behind the acquisition recommendation within the Excel spreadsheet.
Analyzing the Results
This case study describes two corporations (A and B) who have different revenue values and their variable depreciation expenses, tax and discount rates. The writer has calculated companies’ cash flow, NPV and IRR value utilizing a Microsoft Excel spreadsheet. By definition the net present value (NPV) shows the difference between the present value of the future cash flows from an investment as well as the amount of an investment. (Business Dictionary, 2014) whereas the using the IRR method the cash flow can be reinvested.
Based on the calculations in the provided in the case study Corporation A had an NPV of 20,979.41 with the IRR value of 13.05%. Corporation B had an NPV value of 40,525.02 with the IRR value 16.94%. Keep in mind both Corporations had a positive NPV result but, Corporation B accumulated twice as much value than Corporation A this was due to the cash flow. Corporation B’s IRR value surpassed Corporation A’s rate.
After reviewing all information and calculations the acquisition could occur with the initial layout of $250,000 and based on the data provided in the excel spreadsheet the recommendation is the company should purchase Corporation B. This decision was base on the data which shows Corporation B’s NPV and IRR rates are significantly higher and is the better investment option. Corporation B will definitely be more profitable to the organization by executing this