Guillermo Furniture Capital Budget Recommendation ACC/543 Professor Deborah Fitzgerald-Thomas University of Phoenix November 08‚ 2010 Abstract Recent changes in the business environments and economy have prompted Guillermo to find different options to invest and stay in business. As a new hire accountant for employer Guillermo Furniture‚ I have analyzed and differentiate capital budge techniques and recommended best suited course of action. Capital Budget Recommendation Guillermo
Premium Net present value Internal rate of return
Johnnie & Sons Paints Inc. Capital Budgeting Decision SAMPLE PROJECT The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost $200‚000‚ with a disposal value of $40‚000‚ and would be able to produce 5‚000‚000 cans over the life of the machinery. The production department estimates that approximately 1‚000‚000 cans would be needed for
Premium Net present value Internal rate of return Cash flow
Capital Budget Recommendation: Guillermo Furniture ACC/543 Monday October 8‚ 2009 YouKnew Abstract Guillermo Navallez is the owner of a successful furniture and manufacturing company located in Sonora‚ Mexico. Navallez’s establishment is known for its quality pieces‚ crafting a variety of chairs and tables from the abundant supply of timber in the area. In the late 1990’s‚ Navallez competitors became a real threat to the ongoing success of Guillermo’s Furniture and Manufacturing Company
Premium Net present value
this online NPV Calculation Tool http://finance.thinkanddone.com/online-n… we get the following NPV at 15% Net Cash Flows CF0 = -3000000 CF1 = 1100000 CF2 = 1450000 CF3 = 1300000 CF4 = 950000 Discounted Net Cash Flows DCF1 = 1100000/(1+0.15)^1 = 1100000/1.15 = 956521.74 DCF2 = 1450000/(1+0.15)^2 = 1450000/1.3225 = 1096408.32 DCF3 = 1300000/(1+0.15)^3 = 1300000/1.52087 = 854771.1 DCF4 = 950000/(1+0.15)^4 = 950000/1.74901 = 543165.58 NPV Calculation NPV = 956521.74 +
Premium Net present value Internal rate of return Cash flow
The crossover rate‚ where the NPVs are the same is 8.16%. Project A Project B Required Return 8.25% Required Return 8.25% Cash Flows Period Cash Flows Cash Flows Period Cash Flows Initial Outlay -8‚500 0 -8‚500 Initial Outlay -9‚500 0 -9‚500 1 3‚600 1 3‚900 2 2‚400 2 2‚900 3 2‚850 3 2‚900 4 5‚200 4 5‚550 Discounted Payback Period 3.23 Discounted Payback Period 3.28 NPV $2‚907.51 NPV $2‚905.64 Profitability Index
Premium Net present value
Running head: A COMPARISON OF EVA AND NPV A Comparison of EVA and NPV (discuss the differences and similarity of EVA and NPV; why would companies choose to adopt EVA‚ implementation issues; chronicle the implementation experience of EVA on a real life company). 1 A COMPARISON OF EVA AND NPV 2 A Comparison of EVA and NPV (discuss the differences and similarity of EVA and NPV; why would companies choose to adopt EVA‚ implementation issues; chronicle the implementation
Premium Corporate finance Value added Investment
NPV Versus IRR W.L. Silber I. Our favorite project A has the following cash flows: -1000 0 0 1 0 2 +300 3 +600 4 +900 5 We know that if the cost of capital is 18 percent we reject the project because the net present value is negative: - 1000 + 300 600 900 + + = NPV 3 4 (1.18) (1.18) (1.18)5 - 1000 + 182.59 + 309.47 + 393.40 = -114.54 We also know that at a cost of capital of 8% we accept the project because the net present value is positive: - 1000 + 300 600 900
Premium Net present value Internal rate of return Cash flow
process used to determine whether an organization’s long term investments such as new machinery‚ replacement machinery‚ new plants‚ new products‚ and research development projects are worth pursuing. It is budget for major capital‚ or investment‚ expenditures. Many formal methods are used in capital budgeting‚ including the techniques such as 1. Accounting rate of return 2. Net present value 3. Profitability index 4. Internal rate of return 5. Modified internal rate of return
Premium Net present value
N04 HL P1 Q5 Payback Calculation Year Machine A $ Machine B $ 1 45‚000 25‚000 Part of 2 20‚000 (0.57 of 35‚000) 35‚000 Part of 3 - 25‚000 (0.45 of 55‚000) Investment 65‚000 85‚000 1 + 0.57 = 1.57 (Machine A has payback period of 1.57 years) 2 + 0.45 = 2.45 (Machine B has payback period of 2.45 years) Accounting Rate of Return Calculation Machine A $ Machine B $ Net Return 155‚000 205‚000 Total Return-Investment 155‚000 – 65‚000 = 90‚000 205‚000 – 85‚000 = 120‚000
Premium Net present value
**What is NPV?** a) If the value of NPV is greater than 0‚ then the project is a go! In other words‚ it’s profitable and worth the risk. b) If the value of NPV is less than 0‚ then the project isn’t worth the risk and is a no-go. So NPV takes risk and reward into consideration‚ which is why we use it in the world of corporate finance and capital budgeting. **Example** In order for us to calculate NPV‚ let’s use the following example. Suppose we’d like to make 10% profit on a 3
Premium Net present value