Capital Budgeting Case
Business decision involve calculated risks and good understanding of capital budgeting. In the process of deciding to start a new project or to acquire a new business, the focus is usually on the free cash flows measurements, which often are derived from the capital-budgeting proposal. Determining the profitable projects requires comparing the cash flows over a few years, preferably five, where the Net Present Value and the Internal Rate of Return are compared to indicate profitability. Even though these financial tools are extremely valuable in determining profitable projects, many businesses overlook the process entirely and make decisions often with dire consequences.
Business Inc. are considering purchasing another corporation. Our team researched businesses that were available for acquisition. Financially we could afford no more than $250,000. Upon our investigation two potential companies were identified, we shall call them “Company A” and “Company B” at this time. Both companies have great promise and potential, however, we are in the position of choosing only one of the two companies. The best and most valid way to determine which of the two companies will be chosen is to conduct a capital budget scenario of each. Appendages to this document is the excel spreadsheets to document our findings.
In both companies we were given financial information that aided us in conducting a five-year projected income statement, a five-year projected cash flow, net present value, internal rate of return, thus providing us with a useful document which analyzed both companies to help us make a decision as to which company we should acquire. Our first order of business was to determine the five year projected income statement as we want to know the companies potential in generating income. We analyzed this by subtracting the total expenses