Discussion Post #4

The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cute Camel Woodcraft Company:   Cute Camel Woodcraft Company is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Alpha’s expected future cash flows. To answer this question, Cute Camel’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.   Complete the following table and compute the project’s conventional payback period. Round the conventional payback period to two decimal places. For negative values, be sure to include a minus sign in your answer. For full credit, complete the entire table. Year 0 Year 1 Year 2 Year 3 Expected cash flow -4,500,000 $1,800,000 $3,825,000 $1,575,000 Cumulative cash flow year0? year1?…

When we use the term “capital budget,” we are referring to the list of projects that business might undertake during the next planning period. When analyzing whether a company should undertake a certain project, one of the most critical steps in analyzing a capital investment proposal is estimating the incremental cash flows for the project. This is important because there is financial risk involved when undertaking any new business venture. A variety of factors must be considered such as opportunity costs and sunk costs. Inflation must also be considered. The process of analyzing capital budget decisions requires a manager to consider many factors, as well as possibly even conducting a sensitivity analysis or a scenario analysis. By inputting different variables, the manager will be able to see the different outcomes which might occur. In the health care industry, these factors may include risk, profitability, the needs of both the medical staff and the patient population and how the…

The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc.: Green Caterpillar Garden Supplies Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Alpha’s expected future cash flows. To answer this question, Green Caterpillar’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.   Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.)   Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,500,000…

The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cute Camel Woodcraft Company: Cute Camel Woodcraft Company is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta’s expected future cash flows. To answer this question, Cute Camel’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.   Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.)   Year 0 Year 1 Year 2 Year 3 Expected cash flow -$5,000,000 $2,000,000 $4,250,000…

The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cute Camel Woodcraft Company: Cute Camel Woodcraft Company is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Sigma's expected future cash flows. To answer this question, Cute Camel's CFO has asked that you compute the project's payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project's conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Expected cash flow Cumulative cash flow Conventional payback period: $ Year 0 -$5,000,000 years Year 1 $2,000,000 Year…

The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cute Camel Woodcraft Company: Cute Camel Woodcraft Company is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Sigma's expected future cash flows. To answer this question, Cute Camel's CFO has asked that you compute the project's payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project's conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Expected cash flow Cumulative cash flow Conventional payback period: $ Cash flow Discounted cash flow Cumulative…

You can come across different situations in your life where the concepts from capital budgeting will help you in evaluating the situation and making calculated decisions. Consider the following situation: The following table contains five definitions or concepts. Identify the term that best corresponds to the concept or definition given. Concept or Definition Term An example of externality that can have a negative effect on a firm      The cash flow at the end of the life of the project      Creates value for a company because it gives the company the right but not the obligation to take future action to increase its cash flows      The risk of a project without factoring in the impact of diversification      A risk analysis technique that measures changes in the internal rate of return (IRR) and net present value (NPV) as individual variables are changed        Marston Manufacturing Co. owns a warehouse that it is not currently using. It could sell…

Imagine that you have been tasked with evaluating the future investment of equipment for a company. To make an effective decision you will likely consider various capital budgeting techniques such as the cash payback technique, internal rate of return (IRR), annual rate of return (ARR), and the net present value (NPR) methods. Which method are you most likely to use to evaluate future investments and which are you least likely to use?

Describe how you would use capital budgeting techniques to determine whether a business investment is a good idea. Give an example of a business investment venture and how you would use capital budgeting to ensure it is a good investment.

The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Blue Hamster Manufacturing Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Sigma’s expected future cash flows. To answer this question, Blue Hamster’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.   Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.)   Year 0 Year 1 Year 2 Year 3 Expected cash flow -$6,000,000 $2,400,000 $5,100,000…

Imagine that you have been tasked with evaluating the future investment of equipment for a company. To make an effective decision you will likely consider various capital budgeting techniques such as the cash payback technique, internal rate of return (IRR), annual rate of return (ARR), and the net present value (NPR) methods. Discuss which method you are most likely to use to evaluate future investments and which you are least likely to use.

rojects differ in risk, and risk analysis is a critical component of the capital budgeting process. Consider the case of United Recycling Inc.: United Recycling Inc. is one of the largest recyclers of glass and paper products in the United States. The company is looking into expanding into the cardboard recycling business. The company’s CFO has performed a detailed analysis of the proposed expansion. The company’s CFO hired a third-party consulting firm to estimate the cost per ton of processing the cardboard. The consulting firm’s cost estimate for processing the cardboard was significantly higher than what the CFO had been using in his financial model.   Based on the information given, determine which of the statements is correct. When the CFO adjusts the cost per ton of processing the cardboard, the project’s NPV will decrease.   When the CFO adjusts the cost per ton of processing the cardboard, the project’s NPV will increase.     Evaluating risk is an…

The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Beta’s expected future cash flows. To answer this question, Cold Goose’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.   Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to the nearest two decimal places. If your answer is negative use a minus sign.)   Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,500,000 $1,800,000 $3,825,000 $1,575,000 Cumulative…

The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Beta’s expected future cash flows. To answer this question, Cold Goose’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.   Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.)   Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,500,000 $1,800,000 $3,825,000 $1,575,000…

. The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta’s expected future cash flows. To answer this question, Cold Goose’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.   Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.)   Year 0 Year 1 Year 2 Year 3 Expected cash flow -$6,000,000…

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5. Risk analysis in capital budgeting Projects differ in risk, and risk analysis is a critical component of the capital budgeting process. Consider the case of United Recycling Inc.: United Recycling Inc. is one of the largest recyclers of glass and paper products in the United States. The company is looking into expanding into the cardboard recycling business. The company’s CFO has performed a detailed analysis of the proposed expansion. The selling price of recycled cardboard can fluctuate dramatically, depending on the market conditions. By creating models that used different assumptions for the selling price of recycled cardboard but keeping all other inputs in the model the same, the CFO demonstrated the effect of fluctuations in the price of recycled cardboard.   A. Based on the information given, determine which of the statements is correct.   The company’s CFO performed a scenario analysis on the project’s financial model.   The company’s CFO was conducting a…

All parts are under 1 questions, therefore per your policy all parts can be answered.  6. The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Blue Hamster Manufacturing Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta’s expected future cash flows. To answer this question, Blue Hamster’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.   A. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in…

The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta’s expected future cash flows. To answer this question, Cold Goose’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.   Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.)   Year 0 Year 1 Year 2 Year 3 Expected cash flow -$6,000,000…

Explain what a discounted cash flow method of making capital budgeting decisions is. Why are discounted cash flow methods superior to other methods? What are the risks related to using discounted cash flow methods? What a project profitability index? What does it measure? Why is it used? What is the primary criticism of the payback and simple rate of return methods of making capital budget decisions? What are the benefits in using these methods? Should companies continue to use these methods? Why or why not? What role, if any, should qualitative factors play in capital budgeting decisions? Explain your reasoning for your answer Discuss some of the major benefits to be gained from budgeting.

5. Risk analysis in capital budgeting Projects differ in risk, and risk analysis is a critical component of the capital budgeting process. Consider the case of United Recycling Inc.: United Recycling Inc. is one of the largest recyclers of glass and paper products in the United States. The company is looking into expanding into the cardboard recycling business. The company’s CFO has performed a detailed analysis of the proposed expansion. The company’s CFO used sophisticated software to analyze a large number of scenarios and generate estimated rates of return and risk indexes.   Based on the information given, determine which of the statements is correct. The company’s CFO used a Monte Carlo simulation to evaluate the project’s financial model.   The company’s CFO conducted a sensitivity analysis to evaluate the project’s financial model.     Evaluating risk is an important part of the capital budgeting process. Which of the following is measured by its…

Of the following choices, which one is an example of erosion and should be included in a capital project analysis? Multiple Choice The sudden loss of sales due to a major employer in your community implementing massive layoffs. The reduction in sales that occurs when a competitor introduces a new product. The reduction in sales price that will most likely be required to sell inventory that has aged. The anticipated loss of current sales when a new product is launched. The expected decline in sales as the market for a product becomes saturated.

Explain how capital budgeting helps companies contribute to value creation.  Discuss each of the following different techniques: NPV, IRR and the Payback Period analysis.  Choose one and provide an example.

The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in capital budgeting decisions. There are two versions of the payback method: the conventional payback method and the discounted payback method. Consider the following case: Green Caterpillar Garden Supplies Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta’s expected future cash flows. To answer this question, Green Caterpillar’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year.   Complete the following table and compute the project’s conventional payback period. Round the payback period to the nearest two decimal places. Be sure to complete the entire table—even if the values exceed the point at which the cost of the project is…

Capital budgeting can be affected by factors such as exchange rate risk, political risk, transfer pricing, and strategic risk. Select a mid- or large-sized business organization and explain how each of these factors can affect its capital budgeting. Which factor poses the greatest threat to your selected organization and why? What measures can stakeholders take to reduce adverse impacts of these factors?

Examples of opportunity costs include: not getting a high yield because you have set aside funds in a low risk investment. ☐not having as much money in savings because you purchased new appliances to save energy costs. trading in a large car with poor gas mileage for a smaller car that is fuel-efficient. delaying investment while waiting for the time value of money to increase the pay received. having enough money to save for retirement and to pay for current expenses.