Capital Budgeing Case Study Essay Example for Free

Capital Budgeing Case analyse EssayThere are at least six jacket budgeting tools a firm goat use in analyzing a uppercase expenditure. They are net defer value (NPV), internal run of return (IRR), profitability index (PI), payback period (PB), discounted payback period (DRP), and modified internal range of return (MIRR). This case study will focus mainly on NPV and IRR, in addition to the be four capital budgeting tools.Net Present Value (NPV)The NPV of an investment proposal for a vomit is the alike as the present value of its annual free cash flows less the investments sign outlay (Keown, Martin Petty, p. 310, 2014). Before calculating the NPV you must first forecast the projected revenue for the life of the project to obtain the net cash flow figures. This involves accountants and analysts crunching numbers ground on many factors such as the economy, supply and demand, competition, and how the company plans on carrying out the project (University of Phoenix, 2013 ). NPV looks at the present value of the benefits minus the present value of the costs. You also need a discount rate it is normally the cost of capital. The cost of capital is used because a firm wants the project to at a minimum make more than what capital is now costing the firm to run its business.The rule for NPV is if the value is greater than or equal to zero in the project is accepted (Keown, Martin Petty, p. 310, 2014). After completing a five year projected income statement and a five year projected cash flow from the capital budgeting case study for corporation A and B, this information was used to calculate the NPV for each corporation. Corporation As NPV= $2,025 and Bs is NPV= $3,293. twain NPVs are equal or greater than zero so both projects are a go, but corporation B has a greater NPV, making it a better choice if based on NPV alone (University of Phoenix, 2013). Internal Rate of Return (IRR)