One of the most important decisions that must be taken when selecting from a range of projects is which method(s) of Capital Budgeting a company will opt for in order to arrive at the final proposed solution. “Investment decisions must be consistent with the objectives of the particular business. For a private sector business, maximising the wealth of the owners (shareholders) is usually assumed to be the key financial objective.” (Atrill and McLaney, 2009, p. 259) As a company exists primarily to
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UVA-F-1563 Rev. Jan. 22, 2013 TARGET CORPORATION On November 14, 2006, Doug Scovanner, CFO of Target Corporation, was preparing for the November meeting of the Capital Expenditure Committee (CEC). Scovanner was one of five executive officers who were members of the CEC (Exhibit 1). On tap for the 8:00 a.m. meeting the next morning were 10 projects representing nearly $300 million in capital-expenditure requests. With the fiscal year’s end approaching in January, there was a need to determine which
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Capital Budgeting Finance 100 Prof. Michael R. Roberts Copyright © Michael R. Roberts 1 Topic Overview How should capital be allocated? » Do I invest / launch a product / buy a building / scrap / outsource... » Should I acquire / sell / accept offer for company or division? » How should the capital budgeting process be organized? Which choices should I make? » make or buy » which distribution channel » should I test market a product Copyright © Michael R. Roberts 2 1 1
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Caledonia Products Integrative Problem Michelle M. Rayford, Peter Pontone, and Sibylle Letzelter FIN/370 June 18, 2012 Laura Haase Caledonia Products Integrative Problem Question 1 Caledonia should focus on project free cash flows as opposed to accounting profits earned because free cash lows show the value of the projects. Caledonia needs to isolate the project independent from regular company financials to understand how the project will contribute value to the business. Accounting profits
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project or not. Six issues will be discussed as follows 1) importance of energy cost; 2) project’s cash flows; 3) cost of capital; 4) choose an engine 5) evaluation 6) accept or reject. We should accept the project because of the positive NPV and high IRR. We will gain $532 million in wealth which is a big money on the scale like this. The company has a bond rating of AA that makes the risk relatively low. So we should definitely say yes. Issues Importance of Energy Cost Road King Trucks, Inc
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proposal will be submitted. The proposals are: Match My Doll Clothing Line Expansion and Design Your Own Doll. A systematic process will be used to determine which proposal to recommend. Criteria Include: 1. Comparison of the business cases 2. NPV analysis 3. IRR and payback period analysis 4. Analysis of additional information 5. Recommendation Comparison of the Business Cases Most Compelling Business Case Match My Doll Clothing Line Expansion Match My Doll Clothing Line Expansion is the the most
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project or not. Six issues will be discussed as follows 1) importance of energy cost; 2) project’s cash flows; 3) cost of capital; 4) choose an engine 5) evaluation 6) accept or reject. We should accept the project because of the positive NPV and high IRR. We will gain $532 million in wealth which is a big money on the scale like this. The company has a bond rating of AA that makes the risk relatively low. So we should definitely say yes. Issues Importance of Energy Cost Road King Trucks
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| Finance 390 | Memo To: | Bob Saunders and Maria Gonzalez | From: | Kelly Moeller | cc: | Antar Salim | Date: | April 13, 2015 | Re: | Capital Budgeting | | | After reviewing your case, it appears that you are trying to determine whether Project A or Project B would be more feasible. Project A has an investment of about $2,000,000 on plant, equipment and supplies. During the first year of operations, the sales and cash flows will be low because you plan to sell the product at a
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Questions: 1. Can you rank the projects simply by inspecting the cash flows? 2. What criteria might you use to rank the projects? Which quantitative ranking methods are better? Why? 3. What is the ranking you found by using quantitative methods? Does this ranking differ from
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1500000 IRR 23.08% 37.50% NPV 23181.8181818182 300000 1. Calculate the net present value NPV Project A $23,181.82 Project B $300,000.00 2. Calculate the profitability index. PI = Present Value of Inflow/Initial Investment Project A = 218181.82/195000 = 1.12 Project A =1500000/1200000 -1.25 3. Calculate the internal rate of return. IRR Project A 23.08%
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