01 Jul Capital Budgeting and Investment Decisions Case study Discussion
Question Description
Capital budgeting involves evaluating investment decisions and requires managers to consider many factors to make a sound decision. These factors include an investment’s net present value (NPV), internal rate of return (IRR), and payback period. In addition, managers must weigh the risk involved in the project when calculating the weighted average cost of capital (WACC). Even with all these analytic tools, evaluating investment alternatives is complex because it relies on projections. Consider the following three scenarios. For each scenario, consider how you would proceed as a manager of this company. Be sure to include the following details to justify your thinking:
Do you agree with the techniques used in these scenarios? What techniques would you have used, and why?
Is one analytical tool “better” than another in each scenario? Why or why not?
What questions would you have concerning the underlying projections in each scenario?
How would you evaluate the risk inherent in these scenarios? How would this impact the ways in which you evaluate each scenario?
Here are the three scenarios for your consideration:
You recently started a company that provides pet-sitting services for affluent customers in their homes. Based on customer feedback, you are interested in purchasing equipment that will enable customers to rent equipment to see their pets’ activities from their mobile devices. The net present value (NPV) of this project is positive with an internal return rate of 16.6%, but its payback period is 5.5 years. What do you think is important to consider in evaluating this investment opportunity?
Your company is considering purchasing a robotic self-driven lawn-mowing machine to maintain its corporate office park grounds. This machine seems costly, but it will pay for itself in 2.5 years by eliminating the salaries of the maintenance employees who currently perform the lawn maintenance. Another manager points out that these employees perform not only lawn maintenance, but also a variety of other upkeep activities. You know the current maintenance staff is well-liked by the employees, who view them as hard workers. How would you frame this investment decision as a manager? What stance would you take?
Due to recent government regulations, a piece of equipment will cost an estimated $250,000 to dispose of. Management projection from five years ago had figured this piece of equipment would have a $400,000 salvage value. How would knowing this information from the start have impacted your decisions? How does this new information impact the investment’s return?
Skills
Calculate cash flows on capital budget projects.
Evaluate investment opportunities using various techniques such as net present value (NPV), internal rate of return (IRR), and payback period.
Describe risk in capital budgeting and strategies, such as sensitivity analysis, scenario analysis, and risk adjusted discount rate.
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Wridemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.