Capital budgeting techniques case studies

The training course will concentrate on imparting to delegates how to learn the concepts, processes, and techniques of budgeting and business planning in order to be better able to carry out their budgeting and business planning tasks and responsibilities.

Capital budgeting techniques case studies

All of the above metrics should not affect the deliberations much because the ultimate decision for the project investment would be made on the basis of the net present value of the project. However, if we did not have the NPV of each of the projects, then we would have used IRR to decide which project yields the highest excess returns above the current cost of capital of the company.

Chapter 1 – Introduction to Capital Budgeting

The payback period would have been used if time of the returns from the projects was an issue for the management however, this is not really important in selecting the project. Finally, if the return on investment metric was important and higher value per unit investment was the goal, then PI would have been used to decide among both the projects.

However, in the case of New Heritage Doll Company, we need to expand on the basis of one of the two projects and the project that yields the highest value for the investors of the company. All of the other metrics do not provide any useful information beyond the NPV of the projects.

Capital budgeting techniques case studies

Harris to analyze both the projects and make a final decision about which project to use. For instance, it is important to know that which project objectives are more aligned with the corporate goals and mission of the company. Secondly, it is also important to determine the sensitivity of each of the two projects with respect to the changes in the interest rates, borrowing capacity, available capital, discount rates and the terminal values for each of the projects.

Another useful piece of information would be to know the expected size of the market for the product lines manufactured under each of the two projects. Other specific questions that she should ask the project sponsors are as follows: How much risk the project sponsors were willing to take?

How much capital were the project sponsors willing to invest for one of the two projects?

Capital budgeting techniques case studies

What is the risk appetite of the project sponsors? How much time period were the project sponsors willing to wait before the returns were generated by the projects?

Finally, the goal of the company at this point of time is to boost the revenues of the company and sustain the current growth of the company, therefore, Harris should recommend the MMDC project to the committee.

This project has already proved to be successful and the demand for the product line under this project was already high in the market and the project had moderate risk therefore, it is more aligned with the corporate goals and the future goals of the company…………………….

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This is a technique for approximating the expected returns of a project. This is a technique for approximating the expected returns of a project.

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Code Start Date End Date Duration Course Name; FIN 10 Dec 21 Dec 2 weeks: Advanced Reporting and Budgeting (Levels 1 and 2) - Refresh your knowledge and up date your methods and techniques in financial strategy and decision-making FIN.1A: 10 Dec Financial planning software, personal finance software, and investment software for consumers, investors, financial advisers and investment managers.

This explains various capital budgeting techniques through various case studies. The tools discussed are NPV, IRR, Free cash flow etc. Capital Budgeting Techniques Capital budgeting is a critical choice that the financial managers are compelled to take on behalf of an organization (Banerjee , p).

Capital budgeting enables the leaders of an institution to select the best project that would yield the highest returns.

Risk Management and Beyond Budgeting