Capital 20Budget 20Analysis 20Group 20P
Capital Budgeting Analysis
Amanda Kocanda, DeUndre’ Rushon,
HuongTran,& Morgan Gibreal
MBA 612, Financial Strategy
October 28, 2014
Bellevue University
Abstract
Within this paper, an overview of the general capital budgeting process and how it is implemented within organizations is defined and reported. Key terms related to capital budgeting are also defined. Risk analysis based on the Net Present Value (NPV) is performed on the salvage values before and after sales tax values along with the different sale ranges.
Keywords: NPV, NPV Profile, NPV, IRR, multiple IRRs, ranking conflict of NPV vs. IRR, payback period, profitability index, discount rate, cost of capital concept, cash flow analysis, cash flow timeline, conventional cash flow stream, non-conventional cash flow stream, sunk cost, opportunity cost, independent projects, mutually exclusive projects
Overview of the Capital Budgeting Process Every business requires some source of funds to maintain operation and competitive advantages. Whether it’s a manufacturing or servicing firm, it requires financing. Financing sources can be obtained through debt, bond issuance, bank loan, equity, and issuance of preferred and/or common stock. The amount of debt and equity builds the firm's capital structure. The firm's corporate or business strategy is the proportion of capital structure it needs to finance its operation. The combination of debt and equity totals the cost of capital for the firm. The cost of capital is the weighted average of each capital source fund. The cost of capital is known as the, Weighted Average Cost of Capital (WACC). The WACC includes many factors as profitability, credit worthiness, debt history, and other finance factors. WACC gives a firm a benchmark to where it should receive any gain. Since firms are continuously trying to improve its infrastructure, business processes, or competitive priorities, WACC is heavily utilized in capital
Amanda Kocanda, DeUndre’ Rushon,
HuongTran,& Morgan Gibreal
MBA 612, Financial Strategy
October 28, 2014
Bellevue University
Abstract
Within this paper, an overview of the general capital budgeting process and how it is implemented within organizations is defined and reported. Key terms related to capital budgeting are also defined. Risk analysis based on the Net Present Value (NPV) is performed on the salvage values before and after sales tax values along with the different sale ranges.
Keywords: NPV, NPV Profile, NPV, IRR, multiple IRRs, ranking conflict of NPV vs. IRR, payback period, profitability index, discount rate, cost of capital concept, cash flow analysis, cash flow timeline, conventional cash flow stream, non-conventional cash flow stream, sunk cost, opportunity cost, independent projects, mutually exclusive projects
Overview of the Capital Budgeting Process Every business requires some source of funds to maintain operation and competitive advantages. Whether it’s a manufacturing or servicing firm, it requires financing. Financing sources can be obtained through debt, bond issuance, bank loan, equity, and issuance of preferred and/or common stock. The amount of debt and equity builds the firm's capital structure. The firm's corporate or business strategy is the proportion of capital structure it needs to finance its operation. The combination of debt and equity totals the cost of capital for the firm. The cost of capital is the weighted average of each capital source fund. The cost of capital is known as the, Weighted Average Cost of Capital (WACC). The WACC includes many factors as profitability, credit worthiness, debt history, and other finance factors. WACC gives a firm a benchmark to where it should receive any gain. Since firms are continuously trying to improve its infrastructure, business processes, or competitive priorities, WACC is heavily utilized in capital