Capital Budgeting

When building a in the alto endureher factory, the incremental exchange f humiliated-toneds argon in need for the force bug out portray honor (NPV) synopsis in which are terzetto million in gross revenue per year, an initial enthronisation of 10 million for the greet of the building, and a salvage of 14 million at the end of the life. Reviewing the initiative curry of info on the excel attachment shows the pelf open jimmy with a cost of uppercase at a 10% weighted add up. The first table shows NPV as a proscribe $3,680,709 for the capital purpose in which message the project would bring on a decrease in the company. create a step-down in the company causes the stockholders to lose money. The new factory has an enceinte life of 10 years in which is reflected in the calculations. withal at the end of life of the project the calculations include the 14 million dollars of the salvage value when sell the factory. The calculation of the present value factor use s the formula 1/(1+r)^t where the r represents the cost of capital and the t represents the year. The present value of the cash in f meeks computation is multiplying the cash flow by the present value. In the next set of data the net present value with the cost of capital at 6% weighted average changes the NPV to a contradict $1,078,460.

The NPV drastically changed when changing the percentage from 10 to six when comparing the two spreadsheets. following(a) when comparing the third set of data the cost of capital is 12% creating a negative NPV of $4,644,841 in which is another drastic change when comparing to th e 6% and 10% cost of capital. study these ! three sets of data shows that when the cost of capital is lofty the NPV low and when the cost of capital is low the NPV is high. When a company is spirit at financials long-term the adoption of projects should entail a low cost of capital and a project with a high cost of capital should be rejected. The use of capital budgeting techniques in strategic financial watchfulness is important because the process helps with a company with...If you want to get a full essay, come out it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper