StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Capital budgeting decision - Coursework Example

Cite this document
Summary
Business make this decision in anticipation of the expansion, other business acquisition, modernization, development of new product line, purchase of fixed assets, and replacement of…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER95.2% of users find it useful
Capital budgeting decision
Read Text Preview

Extract of sample "Capital budgeting decision"

Capital Budgeting Decisions Capital Budgeting decisions The business decision to invest its current funds most efficiently in long-term projects. Business make this decision in anticipation of the expansion, other business acquisition, modernization, development of new product line, purchase of fixed assets, and replacement of investment. Business capital budgeting decisions should be taken with a lot of precaution because they influence the long-term growth of the organization, affect overall risk of the business, involve commitment of enormous amount of funds and the projects are mostly irreversible or reversible at a substantial loss.

Michael Evans investing in vineyard Garrison, Noreen, & Brewer, (2014) was a good decision. Growing a vineyard in an opulent estate where land is expensive was an enormous capital outlay. The property is utilized in investing in a less costly business decision of investing in vineyard plantation rather than real estate that is more capital intensive.An annual growth rate of 30% gives a payback period of 3.33years. The investment will realize their full investment outlay in three years. This period is far much below than industry norm of 5years.

Michael Evans opened a cooperative society business. He relinquished vineyard-growing business to other investors. Michael Evans made a wise business decision. Selling and lease back where he charged the new investors a one-off fee of $85,000 and an annual maintenance fee of $3,500 to process one bottle of wine Megan, (2014). Through this, he raised initial capital to fund his cooperative business investment.In conclusion, the cash flows of the new business line are guaranteed. The business may use this annual cash flow to invest in other long-term projects.

Michael Evans is a realized the importance of the net present value of the assets and utilized opportunity to invest in a new business line.ReferencesGarrison, R., Noreen, E., & Brewer, P. (2014). Investing in a Vineyard: A Cash FlowsPerspective (15th ed.). Managerial accounting. 13, 585Megan, S. (2014). Splendor in the vines: how to buy a vineyard. Retrieved from: 26 January2014.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Capital budgeting decision Coursework Example | Topics and Well Written Essays - 250 words”, n.d.)
Capital budgeting decision Coursework Example | Topics and Well Written Essays - 250 words. Retrieved from https://studentshare.org/finance-accounting/1690539-capital-budgeting-decision
(Capital Budgeting Decision Coursework Example | Topics and Well Written Essays - 250 Words)
Capital Budgeting Decision Coursework Example | Topics and Well Written Essays - 250 Words. https://studentshare.org/finance-accounting/1690539-capital-budgeting-decision.
“Capital Budgeting Decision Coursework Example | Topics and Well Written Essays - 250 Words”, n.d. https://studentshare.org/finance-accounting/1690539-capital-budgeting-decision.
  • Cited: 0 times

CHECK THESE SAMPLES OF Capital budgeting decision

The Payback Period as a Tool in Capital Budgeting Decisions

The payback method is one of the most popular tools in conducting Capital budgeting decision.... capital budgeting is an extremely important aspect of a business organization's financial management.... capital budgeting is defined as the "decision making process used in the acquisition of long term physical assets (capital budgeting , 2006, p.... hellip; The importance of capital budgeting in a company cannot be overstated....
5 Pages (1250 words) Essay

Finance and Growth Strategies

 This assignment discusses the Capital budgeting decision and why capital budgeting is errors so costly.... This assignment discusses the criticisms of the use of the payback method as a capital budgeting technique.... he decision about whether the project should be accepted or not will be based on the results of the financial and strategic analyses using techniques like NPV and IRR.... The internal rate of return is the cost of capital that will equate the present value of future cash flows to zero....
14 Pages (3500 words) Assignment

Financial Management: Wandering Lights Limited

In case of Wandering Lights Limited, it is better to adopt NPV method rather than IRR method, because while assessing the financial viability, technical feasibility, and taking the appropriate Capital budgeting decision of Wandering Lights Limited, it is suitable to undertake NPV as the Capital budgeting decision.... The IRR technique is crucial for taking the capital investment decision.... In order to install the new plant and machinery the company additional fund has to be brought into the company as the capital is not sufficient to install the new facility....
9 Pages (2250 words) Essay

The Discount Rate

Reference Bierman, H & Smidt, S 2004, The Capital budgeting decision: economic analysis of investment projects (6th ed.... The discount rate is the interest rate that is used in the determination of the present value of all the future cash flows.... It can be taken as the interest rates that the banks obtain for their lending from the federal bank or the rate at which banks charge other banks for overnight borrowings....
1 Pages (250 words) Essay

Analyze Capital Budgeting Methodologies (NPV, IRR, MIRR, etc..)

This process is carried out to invest the limited finances of the business in any project that would generate maximum return for the… As the resources of the business are limited, it is necessary to ration or budget those resources so that beneficial returns is earned from them (Maps of World, 2012). There are various techniques of capital budgeting some based on the concept cash flow from the Some of the major capital budgeting techniques are: 2.... This technique uses discounted cash flows in its analysis, which makes it one of the most accurate capital budgeting techniques....
5 Pages (1250 words) Research Paper

650 questions 3 and 4

Thus it can be concluded that Capital budgeting decision involves the use of the appraisal tools to help maximize shareholders' returns and should be professionally done.... The NPV of a project is the discounted value of all the future expected cash flows at the cost capital budgeting Q1.... o ensure that the limited resources are placed in the most profitable investments, the need for capital budgeting cannot be overemphasized.... The use of the various investment appraisal methods have been exploited to help make capital budgeting decisions....
2 Pages (500 words) Assignment

Discussion Question

Capital Budgeting: Capital budgeting decision Tools.... Therefore, there is need of… According to Gad (2014), this is possible through implementing capital budgeting models which are payback method, net present value, and internal rate of return. The Payback Method quantifies the time the projects cash inflows capital budgeting Models capital budgeting Models Large corporate companies invest in future capital projects that require huge cashoutflow with hopes of making much more cash in the future....
1 Pages (250 words) Essay

Capital Budget. Disney park in River County

This park when invested upon can be a source of income to River County and it is for this reason that this capital budget explains how certain assets should be invested on it to bring it back to life (Holland, Jeffrey & David, 2008).... hellip; River County is planning to embark on several methods in raising the above capital, amounting to $1, 234, 000....
3 Pages (750 words) Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us