...Capital Project Martha Mireles HCS/571 February 11, 2013 Janine Lewis Capital Project “A capital expenditure is a commitment of resources that is expected to provide benefits during a reasonably long period, at least two or more years” (Cleverly & Cameron, 2007, p. 397). Sometimes it can be difficult to determine the difference between a capital expenditure and a routine expense. A capital expenditure improves the value of the asset, whereas a routine expense is used for maintenance of that asset. For example, installation of a new bathroom in a rental is a capital expenditure, because it increases the value of the rental. Repairing the stove, however, is a routine expense designed to keep the rental in operating condition. The main goal of a capital purchase is that the lifetime of that product will extend beyond the year of purchase. After purchased the product is called a capital asset. Capital assets are all tangible property which cannot easily be converted into cash and which is usually held for a long period, including real estate, equipment, etc. (Finkler, Kovner, Jones, 2007). Capital assets and money used to purchase such items are treated differently than that of the operating budget. The operating budget is money being used and tangible at the time. Capital assets may cost money now, yet you may not profit from them until another period of time. The key to a good capital purchase knows the life of the product. This can help you choose...
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...founded 25 years ago by the current CEO, Robert Stephenson. The company purchases real estate, including land and buildings, and rents the property to tenants. The company has shown a profit every year for the past 18 years, and the shareholders are satisfied with the company’s management. Prior to founding Stephenson Real Estate, Robert was the founder and CEO of a failed alpaca farming operation. The resulting bankruptcy made him extremely averse to debt financing. As a result, the company is entirely equity financed, with 20 million shares of common stock outstanding. The stock currently trades at $35.50 per share. Stephenson is evaluating a plan to purchase a huge tract of land in the southeastern United States for $60 million. The land will subsequently be leased to tenant farmers. This purchase is expected to increase Stephenson’s annual pre-tax earnings by $14 million in perpetuity. Kim Weyand, the company’s new CFO, has been put in charge of the project. Kim has determined that the company’s current cost of capital is 12.5 percent. She feels that the company would be more valuable if it included debt in its capital structure, so she is evaluating whether the company should issue debt to entirely finance the project. Based on some conversations with investment banks, she thinks that the company can issue bonds at par value with an 8 percent coupon rate. Based on her analysis, she also believes that a capital structure in the range of 70 percent equity/30 percent debt would be...
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...An organization’s valuation can create very efficient planning and capital distribution making this an important step in the organization’s valuation. The short and long term investments of an organization affect the day to day decisions of management and it also affects the organization’s value. Because this affects the value of the organization it becomes extremely important to use appropriate and precise valuation methods in order to estimate business activities and or projects that can affect the value. Using valuation methods such as Internal Rate of Return or the Modified Internal Rate of Return can eliminate improper decisions and the organization will be able to manage their assets and capital in a successful manner and meet the goals of the organization. An organization’s valuation determines what it is worth or what an asset is worth. An organization that has a low value has not made good business decisions, where as an organization that has high value has made good business decisions. Organizations with high value have structured capital with goals in mind. This also allows the organization to have more opportunities for projects and or investments which can increase the value of the organization. Cash flow is a very important especially to have a high and strong cash flow because this helps the organization build value. Poor cash flow can restrict organizations from new projects and handling their debt to creditors properly. If the poor cash flow were to continue...
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...market in a two-stage plan. They must choose to begin a preliminary stage to test the catfish market. After testing the catfish market in the preliminary stage, New England Seafood Company can then enter into a final stage (stage-two) of development. In order for New England Seafood Company to make the best possible decision, they must address the following issues: Determine an accurate representation of the risk of the two-stage project with the appropriate cost of capital, determine New England Seafood Company’s future net cash flows, and determine the efficient utilization of land across company processing divisions. We have determined that an appropriate cost of capital is 10%. This 10% is the weighted average cost of capital for New England Seafood Company and we find it accurately represents the risk for this project. New England Seafood Company traditionally adjusts this cost of capital up or down 3% to compensate for higher or lower risk based projects. But, we feel going away from 10% to 7% cost of capital or 13% cost of capital would...
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...LDRRMF Accountability Form No. 1 “A” REPORT OF LOCAL DISASTER RISK REDUCTION AND MANAGEMENT FUND UTILIZATION For the Quarter Ending September 30, 2012 GENERAL FUND Province/City/Municipality: CITY OF MATI P 543,188,677.00 p 22,257,663.93 Estimated Revenue from Regular Sources: CALAMITY FUND Less: DISBURSEMENTS Pre-Disaster Preparedness Programs Management/Operational Expenses: Fuel, Oil & Lubricants Travelling Expenses Office Supplies Capital Outlay: Purchase of Office Equipment for OpCen Purchase of Vehicle for (OpCen) Projects and Programs: Construction of Flood Control – Sitio Calasagan, Barangay Sanghay __________________________________________________________________ Post-DisasterPrograms Aid given to Fire Victims in Mati during 3rd quarter of 201 Aid sent to DSWD for the Flood Victims in Manila _____________________________________________ _____________________________________________ Payment of Premiums on Calamity Insurance __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ SUBTOTAL BALANCE 102,920.00 13,980.00 7,780.00 68,000.00 1,482,000.00 99,530.00 ______________________ 1,095,000.00 500,000.00 _______________ _______________ ______________________ ______________________ ______________________ ______________________ P 3,369...
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...Questions To Purchase Click Link Below: http://strtutorials.com/ACC-560-WK-9-Quiz-12-All-Possible-Questions-028.htm ACC 560 WK 9 Quiz 12 - All Possible Questions TRUE-FALSE STATEMENTS 1. Capital budgeting decisions usually involve large investments and often have a significant impact on a company's future profitability. 2. The capital budgeting committee ultimately approves the capital expenditure budget for the year. 3. For purposes of capital budgeting, estimated cash inflows and outflows are preferred for inputs into the capital budgeting decision tools. 4. The cash payback technique is a quick way to calculate a project's net present value. 5. The cash payback period is computed by dividing the cost of the capital investment by the net annual cash inflow. 6. The cash payback method is frequently used as a screening tool but it does not take into consideration the profitability of a project. 7. The cost of capital is a weighted average of the rates paid on borrowed funds, as well as on funds provided by investors in the company's stock. 8. Using the net present value method, a net present value of zero indicates that the project would not be acceptable. 9. The net present value method can only be used in capital budgeting if the expected cash flows from a project are an equal amount each year. 10. By ignoring intangible benefits, capital budgeting techniques...
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...Running head: Portfolio Project- Capital Budgeting Page 1 Capital Budgeting April Sutton July 12, 2013 FINANCIAL MANAGEMENT 3004 Instructor Nickey Turner Walden University Running head: Portfolio Project-Capital Budgeting Page 2 INTRODUCTION Capital Budgeting is defined as the process of planning and managing a firm’s long-term investments (Ross, Westerfield & Jordan. 2013). The question of what long term investment should be made is the first step of answering this question. The issues that arise with the asking of this question will be detailed in this paper. Capital Budgeting techniques include the Payback Rule, IRR, NPV, and the Profitability Index. PAYBACK RULE The payback method indicates that an investment is acceptable if its calculated payback is less than some prescribed number of years. The payback method does not consider the present value of cash flows. Under this method, an investment project is accepted or rejected on the basis of payback period. Payback period means the period of time that a project requires to recover the money invested in it (www.accountingformanagement.org).The payback period of a project is expressed in years and is computed using the following formula: Formula of payback period: According to this method, the project that promises a quick recovery of initial investment is considered desirable. If the payback period of a project computed by the above formula is shorter than or equal to the management’s...
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...ACCT 505 FULL WEEK 7 To purchase this visit following link: http://www.activitymode.com/product/acct-505-full-week-7/ Contact us at: SUPPORT@ACTIVITYMODE.COM ACCT 505 FULL WEEK 7 ACCT 505 Full Week 7 ACCT 505 Week 7 Course Project Part B ACCT 505 Week 7 DQ 1 Capital Budgeting ACCT 505 Week 7 DQ 2 Exam Review Activity mode aims to provide quality study notes and tutorials to the students of ACCT 505 Full Week 7 in order to ace their studies. ACCT 505 FULL WEEK 7 To purchase this visit following link: http://www.activitymode.com/product/acct-505-full-week-7/ Contact us at: SUPPORT@ACTIVITYMODE.COM ACCT 505 FULL WEEK 7 ACCT 505 Full Week 7 ACCT 505 Week 7 Course Project Part B ACCT 505 Week 7 DQ 1 Capital Budgeting ACCT 505 Week 7 DQ 2 Exam Review Activity mode aims to provide quality study notes and tutorials to the students of ACCT 505 Full Week 7 in order to ace their studies. ACCT 505 FULL WEEK 7 To purchase this visit following link: http://www.activitymode.com/product/acct-505-full-week-7/ Contact us at: SUPPORT@ACTIVITYMODE.COM ACCT 505 FULL WEEK 7 ACCT 505 Full Week 7 ACCT 505 Week 7 Course Project Part B ACCT 505 Week 7 DQ 1 Capital Budgeting ACCT 505 Week 7 DQ 2 Exam Review Activity mode aims to provide quality study notes and tutorials to the students of ACCT 505 Full Week 7 in order to ace their studies. ACCT 505 FULL WEEK 7 To purchase this visit following link: http://www.activitymode.com/product/acct-505-full-week-7/ ...
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...Questions To Purchase Click Link Below: http://strtutorials.com/ACC-560-WK-9-Quiz-12-All-Possible-Questions-028.htm ACC 560 WK 9 Quiz 12 - All Possible Questions TRUE-FALSE STATEMENTS 1. Capital budgeting decisions usually involve large investments and often have a significant impact on a company's future profitability. 2. The capital budgeting committee ultimately approves the capital expenditure budget for the year. 3. For purposes of capital budgeting, estimated cash inflows and outflows are preferred for inputs into the capital budgeting decision tools. 4. The cash payback technique is a quick way to calculate a project's net present value. 5. The cash payback period is computed by dividing the cost of the capital investment by the net annual cash inflow. 6. The cash payback method is frequently used as a screening tool but it does not take into consideration the profitability of a project. 7. The cost of capital is a weighted average of the rates paid on borrowed funds, as well as on funds provided by investors in the company's stock. 8. Using the net present value method, a net present value of zero indicates that the project would not be acceptable. 9. The net present value method can only be used in capital budgeting if the expected cash flows from a project are an equal amount each year. 10. By ignoring intangible benefits, capital budgeting techniques...
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...sheet, if you did contract directly with the owner of asset. 4. One of major important point is that it is more flexible way of finance. You can fix your need of asset and get it one lease through lease financing. 5. A study from IFC [PDF] has revealed that 30% of total share of lease financing as investment of fixed asset is of emerging and developed economies and now 15% of developing countries. RETAIL BANKING Retail banking is a major form of commercial banking but mainly targeted to consumers rather than corporate clients. It is the method of banks' approach to the customers for sale of their products. The products are consumer-oriented like offering a car loan, home loan facility, financial assistance for purchase of consumer durables, etc. Retail banking therefore has large customer-base and hence, large number of transactions with small values. It may therefore be cost ineffective in a highly competitive environment. Most of the Rural and semi-urban branches of banks, in fact, do retail banking. In the present day situation when lending to corporate clients...
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...Course Project Part II Introduction You will assume that you still work as a financial analyst for AirJet Best Parts, Inc. The company is considering a capital investment in a new machine and you are in charge of making a recommendation on the purchase based on (1) a given rate of return of 15% (Task 4) and (2) the firm’s cost of capital (Task 5). Task 4. Capital Budgeting for a New Machine A few months have now passed and AirJet Best Parts, Inc. is considering the purchase on a new machine that will increase the production of a special component significantly. The anticipated cash flows for the project are as follows: Year 1 $1,100,000 Year 2 $1,450,000 Year 3 $1,300,000 Year 4 $950,000 You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is $3,000,000. 1. What is the project’s IRR? IRR % IRR= 22.38% 2. What is the project’s NPV? NPV NPV= $3,450,866.74 3. Should the company accept this project and why (or why not)? I believe the company should look into this. The IRR is greater than the Required Rate of Return and the overall NPV is a gain. There does not appear to be a loss in this asset. 4. Explain how depreciation will affect the present value of the project. Depreciation would cause the project's PV to go up. This would be a good thing when considering the amount of taxes...
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...shift and avoid tax; (3) Risks for option 3: ● Carry the inventory; ● Incur large capital outlay and sunk cost; ● Increase headcount, payroll and other expenditures (materials, infrastructure, R&D, maintenance, PP&E and depreciation) of Stryker; ●Bear the risk that the equipment may be outdated; (4) Compared with option #1: ●Benefit: no capital outlay; to some extent can protect future against disruptions with lower cost; flexibility; ●Risk: instability in quality, cost, delivery and responsiveness; Compared with option #2: ●Benefit: can improve quality of the supplies by increasing business with the supplier; ●Risk: the possibility of bankruptcy and weak financial performance of supplier; the sole supplier can strongly affect Stryker’s performance; coordination problem. 2. (1) Followings are the key assumptions of our write up: ● Stryker Instruments incurred all capital expenditures including (construction and improvements, furnishings and non-manufacturing equipment, communication equipment and IT infrastructure and capital equipment) in year 2003, before the implementation of the project. ●Revenue: We use the projected PCBs purchases as the revenue, because we can cut the amount of purchases by implementing in-sourcing production. ●COGS: before year 2006, COGS contains the purchases of PCBs and raw materials. After that COGS solely consist of the cost of raw materials. ●SGA:...
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...Capital Budget Recommendation for Guillermo Lynda D. Keller ACC543 June 23, 2014 Richard Collins Capital Budget Recommendation for Guillermo The first and most necessary goal of any organization is to maximize shareholder wealth. Maximizing shareholder wealth includes identifying and analyzing future projects that can provide value. Typically in a risk-return trade off the greater the risk, the higher the return. According to Krenz and Miller, “organizations undertake risky directions when the outcomes are so desirable that the probability of failure makes it worthwhile,” (Krenz & Miller, 2011, p. 18). Guillermo’s Furniture Store is facing increased competition, especially through consolidation of competitors. One option for Guillermo is to upgrade to current technology. This option is costly but can result in a substantial decrease in labor cost. Another option for Guillermo is to change the focus of his business from manufacturing to distribution using his existing distributor network. Keeping in mind that the main goal in capital budgeting is maximizing shareholder wealth managers will need to determine which projects will need to determine which projects will bring the largest return for the least amount of investment. In evaluating projects, there are many capital budgeting tools available to managers. These tools include net present value, weighted average cost of capital, and internal rate of return. According to a Duke University study, “75% of the...
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...Capital Budgeting March 28, 2016 Capital Budgeting An investment project is part of a business growth initiatives, which may be s deemed acceptable or unacceptable based on the rate of the projects return. Unlike most decisions that an organization makes, a capital budgeting decision requires that two decisions a financial and an investment decision. For a business to decide which project to invest their resources, they must use one or several of the tools design for capital budgeting. Definitions, Analysis, and Interpretation Capital budgeting is used to make calculated informed decisions about acquiring property, businesses, and equipment. It is a process that allows investors to analyze, compare and select the acquisition, which will maximize their wealth. Our team had to analyze a Capital Budgeting Case Study presented in week 6 of Quantitative Reasoning for Business course. In this case, we are to choose only one corporation within the budget of $250,000. As stated in the guidelines, there is a comparison between Company A and company B. This is done by four calculations for both companies. Which are the 5-year projected income statement, a 5-year projected cash flow, net present value (NPV), and the internal rate of return (IRR). Included is the excel spreadsheet with our calculations and graph to decipher easily which company will make the best purchase. The NPV and IRR are two critical numbers that are helpful in determining the purchase. “The NPV tells us...
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...Overview Team E chose to adopt and implement a middle of the road strategy in production, pricing, financial and capital (both purchase of machine/plant and project) decisions. By eliminating extreme choice options in pricing, production and financing, Team E strove for consistency in an effort to maintain steady growth and find the optimal capital structure. We finished the simulation in fourth place as shown in Exhibit 1, which represented a 148% increase in Accumulated Wealth. Exhibit 1 - Accumulated Wealth Results $150.00 $120.00 $90.00 $60.00 $30.00 Team A Team E Team I Team O Team U One area of strength for Team E was having a clear, accurate picture of future quarters (outside of simulation-caused activities). This enabled us to know precisely what our plant and machine capacity was going to be and the related depreciation costs, and what principle and interest payments were going to be on existing debt. This, along with basic FinGame rules for Accounts Receivable, Accounts Payable, Warehousing Costs and S&A allowed us to create pro forma statements outside of FinGame for the current and all future quarters. Our most significant improvement was our ability to calculate demand elasticity. We made a modest attempt to calculate elasticity during the practice rounds, but when the results were inconsistent, we didn’t spend much more...
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