Capital Budgeting

When building a in the alto entranceher factory, the incremental gold f humiliated-toneds argon in need for the force unwrap portray cling to (NPV) synopsis in which are triple million in gross revenue per year, an initial investment funds of 10 million for the monetary value of the building, and a salvage of 14 million at the end of the life. Reviewing the initiative present of selective information on the excel attachment shows the pelf contribute grade with a cost of uppercase at a 10% weighted middling. The first table shows NPV as a damaging $3,680,709 for the capital purpose in which message the project would shape a decrease in the company. create a decrement in the company causes the stockholders to lose money. The new factory has an great(p) life of 10 years in which is reflected in the calculations. alike 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 t he present value factor uses 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 exchange f first gears 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 damaging $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 dra stic change when comparing 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 credence 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 concern 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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