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Capital Budgeting Case Essay

This week, Learning Team C, has completed capital budgeting on Corporation A and Corporation B. We were given $250,000.000 to acquire a corporation. We decided to choose Corporation B. To ensure that our decision was the best, this week, we defined, analyzed, and interpreted the Net Present Value and the Internal Rate of Return for both Corporations. We made the decision based on more financial sense. Below, we have outlined our decision making process.

Defined

What we have done first to help define our Net Present Value and Internal Rate of Return was to project 5 years in advance the income and cashflow would potentially look like. Understanding that Corporation A has a ten percent discount rate each year and Corporation B has an eleven percent discount rate, Learning Team C was able to an income statement and cashflow statement defining the detailed financial statements on how our company would operate the two corporations. The next step in our decision making process would be to analyze what we have detailed.

Analyze generate

To be able to compare the two corporations the team reviewed the projected cash flows for each corporation. What the team learned was that both corporations had a negative Net Present Value, Corporation A NPV is $-966.580.90, whereas B is $-633, 959, 95. Reviewing this report Team C identified that Corporation B began to generate revenue in the coming fourth and fifth years. In addition to the revenue turning over, but so did Corporation B’s Cashflow. Corporation B began to see cashflow by the fourth and fifth year. The team has analyzed, that as the corporation continues to grow due to the Net Present Value. The next step would be to interpret what we just analyzed.

Interpret

How Learning Team C came up in choosing Corporation B was through the Net Present Value. Corporation B will be giving the company, over five years, a current value cash return of approximately $-633, 959, 95 above the eleven percent return. In conclusion, making it the more favorable choice.

Conclusion

This week Learning Team C has defined, analyzed, and interpreted two corporations by completing a capital budgeting exercise. They have agreed that Corporation B would be the company that they would acquire from a business standpoint. Net Present Value was used to help influence and determine this decision.


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