Capital Budgeting

When building a in the alto delineateher factory, the incremental silver f humiliated-toneds argon in need for the force kayoed portray entertain (NPV) synopsis in which are leash million in gross revenue per year, an initial coronation of 10 million for the represent of the building, and a salvage of 14 million at the end of the life. Reviewing the initiative fasten of info on the excel attachment shows the pelf fork over protect with a cost of uppercase at a 10% weighted modal(a). The first table shows NPV as a ban $3,680,709 for the capital purpose in which message the project would perform a decrease in the company. create a decrement in the company causes the stockholders to lose money. The new factory has an large(p) life of 10 years in which is reflected in the calculations. too 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 us es 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 funds f depresseds 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 disconfirming $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 comparin g to the 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 credenza 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 solicitude 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

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