Capital Budget Recommendation
ACC: 543
April 4, 2011
Fred Johnston

Capital Budget Recommendation
Capital budgeting techniques are used to determine long term goals, new investment opportunities, and estimating and forecasting future and current cash flows. With any capital budgeting technique measuring risk, uncertainty, and the cost of capital as well as anticipated project performances determines whether to accept the project or reject it. Capital budgeting allows Guillermo Furniture an opportunity to increase their offerings, decrease their cost and possibility find new funding sources to achieve its goals of the company. The payback period is the length of time that is required for Guillermo Furniture to cover the initial investment for the proposed project. The payback period determines how many periods it will take for Guillermo to return the initial investment. In using the payback period when having multiple projects to chose from the one with the shortest payback would be considered a good choice. Calculation of the payback period is summing the project's positive cash flows per period, typically annually, until the sum equals the project's initial investment (www.associatedcontent.com, 2009). The number of time periods passed before inflows are equivalent to original investment price represents the payback period (www.associatedcontent.com, 2009).
Net present value method picks up where the payback period lacks because net present value provides a gauge for profitability and also takes in account the time value of money. The difference between the market value and the post of the project is the NPV, and the realization that interest rates and inflation will impact this value over time is the principle behind the discounted cash flow valuation technique used in figuring the net present value (www.associatedcontent.com, 2009). The net present