Capital Budget Decision

Subject  > Businesss Research Papers  > Accounting

Capital BudgetIn this document one will discuss the capital spending decision based on the simulation presented in the University of Phoenix web page, one will describe the different information used to evaluate the projects and the basis to the final conclusion. Most companies to operate, plant, machinery and equipment are acquired to generate the services, products that eventually will be sold, from which the companies will generate revenues and more importantly wealth. Capital investment is part of the normal processes carried by any company, because of various reasons, from limited resources to a broad diversity of projects; companies are obligated to decide which of various projects of investment they should support. Companies use various financial analysis techniques from DCF models, Internal Rate ...

... increase during the first years to make similar to the DIB project and congruent with the marketing report. For later years one decided to lower the expected sales increase compared to what the report shows, taking into consideration that the communications industry, specially the mobile phone technology obsoletes very fast and one does not expect to see such high sales growth for such a long period of time. Up until this step, the higher NPV calculation was for project number 1 on the Digital Image. NPVIRRDIB17,357 34.60%WC11,17629.90%For both project one decided to include opportunity costs since project number one (DIB) uses a land bough before that could have been leased, if not used for this project; in project

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