Capital Budget

Essay by mysterygirl_dangerUniversity, Bachelor'sA, April 2008

download word file, 2 pages 3.0

Capital budgeting is one of the most important decisions that a financial manager must face. Capital budgeting, according to Block, Stanley, and Hirt (2005), is the process of evaluating and selecting long-term investments that are consistent with the firm's goal of maximizing wealth. Capital budgeting projects, specifically, potential long-term investments, are expected to generate cash flows over several years. A manager's decision to accept or reject a capital budgeting project exclusively relies on an analysis of the cash flows produced by the project and its cost.

Riordan Manufacturing is a global leader in the manufacturing of plastics. "Riordan's products include plastic beverage containers produced at its plant in Albany, Georgia, custom plastic parts produced at its plant in Pontiac, Michigan, and plastic fan parts at its facility in Hangzhou, China" (Riordan, 2006). Riordan's has projected earnings of $46 million and the company is poised to maintain its good financial standing by focusing on long-term growth through research and design, customer satisfaction, and employee engagement.

Riordan plans to ensure that the resources needed to maintain profitability are available.

PlantConsidering that capital budgeting is the planning process used to determine if a company will benefit from purchasing new equipment, new plants and/or new property, it appears that Riordan manufacturing is geared toward future expansion. Expansion involving new plants should be a goal for any company looking to increase profitability and market presence. Part of Riordan's mission statement reads, "We must be focused in achieving and maintaining reasonable profitability to assure that the financial and human capital is available for sustained growth" (, 2006).

Riordan Manufacturing has experienced fairly consistent growth and profitability in the past few years increasing revenues from $8.5M in 2004 to $8.7M in 2005. Riordan recently expanded with a new plant in China in 2000. According to the company's...