Capital Budgeting Case
Courtney Stermer, Lawana Harrison, Teresa Helms, Chung Xueli (Kimberly)
QRB/501
April 21, 2014
Garurank Saxena

Capital Budgeting Case
This paper will define, analyze and interpret the work done in the Microsoft Excel spreadsheet for Week 6 Capital Budgeting Case study. It presents the rationale behind the Net Present Value (NPV) and Internal Rate of Return (IRR) results, description between the relationship of NPV and IRR, and the reasoning behind the acquisition recommendation in the Microsoft Excel spreadsheet.
Two corporations (A and B) were studied with given revenue values and expenses, as well as depreciation expenses, tax rates and discount rates. They were used to compute corporations’ income statement, cash flow, NPV and IRR value using Microsoft Excel spreadsheet.
“The NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. If the NPV of a prospective project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative.

For example, if a retail clothing business wants to purchase an existing store, it would first estimate the future cash flows that store would generate, and then discount those cash flows into one lump-sum present value amount, say $565,000. If the owner of the store was willing to sell his business for less than $565,000, the purchasing company would likely accept the offer as it presents a positive NPV investment. Conversely, if the owner would not sell for less than $565,000, the purchaser would not buy the store, as the investment would present a negative NPV at that time and would, therefore, reduce the overall value of the clothing company.”(Investopedia)

References
Net present value. (June, 2012). Retrieved from