Essay on Financial Management (Capital Budgeting Mini Case)

Words: 4471
Pages: 18
Open Document
FINANCIAL MANAGEMENT: CAPITAL BUDGETING MINI CASE

1

CAPITAL BUDGETING (MINI CASE)

QUESTION A What is capital budgeting?

Solution: Capital budgeting is a required managerial tool. One duty of a financial manager is to choose investments with satisfactory cash flows and rates of return. Therefore, a financial manager must be able to decide whether an investment is worth undertaking and be able to choose intelligently between two or more alternatives. To do this, a sound procedure to evaluate, compare, and select projects is needed. This procedure is called capital

budgeting. In other words, capital budgeting is the process of analysing additions to fixed assets. Capital budgeting is important because, more than anything else, …show more content…
• A second flaw is the lack of consideration of cash flows beyond the payback period. If

the capital project lasts longer than the payback period, then cash flows the project generates after the initial investment is recovered are not considered at all in the payback period calculation.
• The third, and perhaps most important, flaw is that discounted payback period does

not really give the financial manager or business owner a solid decision criterion upon which to make an investment decision.
• However, payback is not generally used as the primary decision tool. Rather, it is

used as a rough measure of a project's liquidity and riskiness.

4|Page

FINANCIAL MANAGEMENT: CAPITAL BUDGETING MINI CASE

5

QUESTION D

1. Define the term net present value (NPV). What is each franchise’s NPV? Solution: NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. If the NPV of a prospective project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative. Below are the calculations on how to calculate the NPV for both franchises:

Franchise L’s NPV is = $18.79 0 | (100.00) 9.09 49.59 60.11 18.79 = NPV L 1 | 10 2 | 60 3 | 80

Franchise S’s NPV is = $19.99 0 | (100.00) 63.64 41.32 15.03 19.99 = NPV S 1 | 70 2 | 50 3 | 20

2. What is the rationale behind the
Show More

Related Documents: Essay on Financial Management (Capital Budgeting Mini Case)

Essay on SYLLABUS FISV5600 Winter 2013 14 1

COURSE SYLLABUS College of Management School of Business MBA Program TERM: Winter 2013-14 COURSE TITLE: Financial Management COURSE NUMBER: FISV5600 QUARTER CREDIT HOURS: 4.5 Quarter Credit Hours CONTACT HOURS: 45 Lecture Hours PREREQUISITES(S): FISV5000 or ACCT1001 and ACCT1002 PROFESSOR NAME: Timothy Howes OFFICE LOCATION: The Friedman Center – Graduate School OFFICE PHONE: 401-598-1404 OFFICE…

Words 1260 - Pages 6

Variable Cost and Bakery Manager Essay

that most costs can be assigned to one of the following three cost pools. Cost Pool Amount Activity Driver Quantity Professional salaries $1,100,000 Professional hours 40,000 hours Building costs 500,000 Square metres used 20,000 square metres Risk management 400,000 Patients served 2,000 patients Hospital services are classified into three broad categories. The services and their volume measures follow. Service Professional Hours Square Metres Number of Patients Surgery 6,000 1,200 200 Inpatient care…

Words 2901 - Pages 12

Marketing Plan for Emirates Airline Essay

The business plan essentially holds the executive summary and key components, graphics and financials that support the greater business plan. This means that the data came from somewhere • Page Range: Usually 3-6 Pages Marketing Plan Type #2: The Strategic Marketing Plan Here is a great description of the Strategic version of the Marketing…

Words 8804 - Pages 36

Project Definition Report - Naxxar Sports and Shopping Complex Essay example

DEPARTMENT OF MANAGEMENT UNIVERSITY OF MALTA Project Management – Project Definition Report Naxxar Sports and Shopping Complex Table of Contents Preface ............................................................................................................................................ 3 Management Summary .................................................................................................................. 4 Background ...........................................…

Words 7391 - Pages 30

Reengineering in Access Bank Plc Essay

It is different from program management in that program management is concerned with managing a group of inter-dependent projects.[2] In computer science, a process is an application in execution. When a process is using the CPU, it is actually running and doing some work. However, it will not always…

Words 15007 - Pages 61

Case Study Of Innovation In The Car Industry

innovation management in the car design and manufacturing industry. Objectives: 1. Identify current trends in the global car industry and their impact upon the European market. 2. Undertake literature research into engineering and business innovation management. 3. Identify case studies in car innovation management. 4. Compare theoretical models of innovation management with company case studies. 5. Make recommendations regarding the effective management of innovation…

Words 13571 - Pages 55

Managing Information Technology (7th Edition) Essay

CONTENTS: CASE STUDIES CASE STUDY 1 Midsouth Chamber of Commerce (A): The Role of the Operating Manager in Information Systems CASE STUDY I-1 IMT Custom Machine Company, Inc.: Selection of an Information Technology Platform CASE STUDY I-2 VoIP2.biz, Inc.: Deciding on the Next Steps for a VoIP Supplier CASE STUDY I-3 The VoIP Adoption at Butler University CASE STUDY I-4 Supporting Mobile Health Clinics: The Children’s Health Fund of New York City CASE STUDY I-5…

Words 239873 - Pages 960