Notes: FIN 303 Spring 09‚ Part 7 – Capital Budgeting Professor James P. Dow‚ Jr. Part 7. Capital Budgeting What is Capital Budgeting? Nancy Garcia and Digital Solutions Digital Solutions‚ a software development house‚ is considering a number of new projects‚ including a joint venture with another company. Digital Solutions would provide the software expertise to do the development‚ while the other company‚ American Financial Consultants (AFC) would be responsible for the marketing.
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Capital Budgeting Analysis Project MBA 612 The General Capital Budgeting Process and how it is implemented within Organizations The general capital budgeting process is the tool by which an organization determines its choice of investments through analyzing and evaluating its cash in and out flows. The capital budget process is vital to the organizations mere existence. Capital budgeting decisions can mean the difference between the company’s
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Question a What is capital budgeting? Are there any similarities between a firm’s capital budgeting decisions and an individual’s investment decisions? Capital budgeting is the process of analyzing potential additions to fixed assets. Capital budgeting is very important to firm’s future because of the fixed asset investment decisions chart a company’s course for the future. The firm’s capital budgeting process is very much same as those of individual’s investment decisions. There are some steps
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Capital Budgeting Read Chaptes 7‚8 & 9 Problems from Chapter 7 : 1 to 28 Chapter 8 : 1 to 23 Chapter 9 : 1 to 24 1. NET PRESENT VALUE A. The Basic Idea Net present value—the difference between the market value of an investment and its cost. While estimating cost is usually straightforward‚ finding the market value of assets can be tricky. The principle is to find the market price of comparables or substitutes. Perspectives: Using the text example (page 257)‚ the basic idea
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Capital Budgeting Rules: NPV‚ IRR‚ Payback‚ Discounted Payback‚ AAR Categories of Plans 1. Replacement Projects: decisions to replace old equipment – those are among the easier of capital budgeting techniques. It is important to decide whether to replace the equipment when it wears out or to invest in repairing the machine. 2. Expansion Projects: These are decisions whether to increase the size of business or not – they are more uncertain than replacement projects. 3. New products and services: These
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Capital Budgeting Capital Budgeting is done because companies need to make Acceptance/rejection decisions for buying fixed assets etc. Features of fixed assets : Investments upfront and returns take a long time. Risk is long term Expenses are indivisible and lumpy Ex. If HUL wants to put up a synthetic detergent plant of 50 cr. Rs. -> by spending 25 Cr. Rs.‚ the plant wont be operational at half the capacityS The Capex decisions are irreversible Projected P&L : Less Sales Raw Materials
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Accounting paper Capital Budgeting‚ Budgeting and Working Capital Strategies Due: December 1‚ 2008 California International Business University‚ San Diego Accounting‚ CIBU 631 Lee White (MBA) Table of content 1 Introduction 3 2 Background and meaning 4 2.1 Budget 4 3 Capital budgeting 5 3.1 Capital budgeting techniques 7 3.1.1 Net Present Value 7 3.1.2 Payback Period 9 3.1.3 Modified Rate of Return 10 4 Budgeting Process 11 4.1 Analytical Tool
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Capital Budgeting Basics A company undertakes capital budgeting in order to make the best decisions about utilizing its limited capital. For example‚ if you are considering opening a distribution center or investing in the development of a new product‚ capital budgeting will be essential. It will help you decide if the proposed project or investment is actually worth it in the long run. Identify Potential Opportunities The first step in the capital budgeting process is to identify the opportunities
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BA 210-Management Principles Chapters Discussion Questions Chapter 1 Discussion Questions Q. 7 Is efficiency or effectiveness more important to organizational performance? Can managers improve both simultaneously? Efficiency is the use of minimal resources to produce a desired volume of output. Effectiveness is the measure by which the organizations achieve their goals. It is my belief that both are equally important. Efficiency and effectiveness are critical to success of
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FIN3101 Corporate Finance Practice Questions Topic: Capital Budgeting 1. Marsh Motors has to choose one of two new machines. Machine 1 costs $180‚000‚ has a 3 year life and EBIT of $108‚750 per year. Machine 2 costs $360‚000‚ has a life of 6 years and EBIT of $122‚875 per year. Assume straight line depreciation over the life of the machine. Marsh is a levered firm with a debt equity ratio of 0.40. The beta of equity is 1.125 while the beta of debt is 0.25. The market risk premium is 8 percent
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