Research assignment- Capital to Capital Budgeting - Essay Example

last five years, it has added more than 4000 stores to its total portfolio mainly due to its unique merchandising strategy offering similar neighborhood type of experience while doing shopping. Its collaboration with major brands of the world further provides an opportunity to position itself as one of the most important retail chain stores in country. The stock performance over last 52 weeks indicates a stronger performance in the market as the stock went on to touch highest market price of $35 whereas lowest market price during this period remained at $19 with total market capitalization of more than $ 3 Billion.

2 The major aim of this research paper is to study how the cost of capital can be applied to capital budgeting process and to assess the capital budgeting practices of Family Dollar besides evaluating its strengths and weaknesses and how such practices can be improved. Capital budgeting is one of the most important concepts in finance and as such requires sophisticated knowledge and skills to accurate determine the different variables which contribute towards making effective capital budgeting decisions by the firms and its managers.

Capital budgeting therefore is a process of determining whether the different investment decisions such as capital expenditure undertaken by the firm are worth taken and would actually result into adding the value to shareholders’ overall value. The simple philosophy behind this process is anything which adds value to the firm and ultimately for its shareholders is worth taken considering other factors into account. There are different methods that are used to assess the capital budgeting process including accounting rate of returns, Profitability Index, Internal rate of return as well as Net Present value Analysis.

NPV or net present value and IRR i.e. internal rate of return are two of the most common methods that are widely used by the firms for capital budgeting purposes. Both these methods are dependent upon the