Capital Budgeting Overview
The capital structure of a company is derived from portions of debt and equity. Debt can be categorized as either long-term or short-term debt. Short-term debt can be classified as notes payable and accounts payable and long-term debt can be classified under bonds. The equity portion of a company’s debt lies within common and preferred stock. Debt is used as a form of leverage to ultimately increase the overall return on an investment. The more debt and equity, capital structure, that a firm has, the more leverage it will have. By using debt, a company can increase its leverage because it can invest in business operations without increasing its overall equity. It also helps the investor and the firm to operate, but increases the added risk of default upon the firm. In the long run, leverage magnifies the overall losses and gains.
The return on an investment is vital when analyzing which projects should be accepted or rejected. Return on investment measures the performance of a project that evaluates the efficiency, or compares the efficiency and performance of different projects. Evaluating return can be modified to fit the specific situation, depending on the returns and costs associated with the projects. The downfall with critiquing or manipulating the return on investment calculation is that the overall result can be expressed and translated in different contexts. The higher the ROI, the better because it will add more value for the firm and potential investors will be inclined to participate in the project due to the high magnitude of returns they foresee in the future.
Atlas Metals Company Investment Overview Atlas Metal has different investment projects that need to be analyzed, service center facility, a new prototyping device, and company routine projects. Throughout this analysis we will make recommendations