This is for thread or discussion. This should be about four to five lines each question.
Topic: Managerial Finance
Detailed Question: Our textbook and lesson discuss some considerations that should be taken into account when doing capital budgeting. Incremental earnings, interest expenses, taxes, opportunity costs, externalities, sunk costs, cannibalization or erosion, depreciation, and salvage value; as well as others. For your first posting, explain in detail what defines capital budgeting. Then, explain how two of these considerations above affect capital budgeting.
For your second posting, describe a potential capital expenditure project from the industry in which you now work or an industry in which you are interested. What is the project? Describe and provide an approximate value of the initial cash flow. Describe and provide an approximate value of the annual cash flow. Provide an estimation of the life of the project, as well as the exit costs.
For your next posting, review the second posting of another student. Then, calculate the NPV and IRR of the project. Based on your workings and assumptions, indicate whether you would accept the project, explaining why.
The Student posting listed below:
A business needs to make money to survive, and capital budgeting is the process for that business to analyze investment opportunities; and to decide which ones are more acceptable in terms of profitability and feasibility.
Two considerations that can affect capital budgeting are opportunity costs, and interest expenses.
First, opportunity cost is the potential revenue the company has to give up or the unavailability of resources to other projects in order to pursue one project over another.
Second, interest expense is how much it will cost the company if they borrow money to fund their project.
These affect capital budgeting because you are hoping that the best project was selected to pursue. For example, if the company chooses project "A" company resources will be tied up until the project is complete, and will not be available for other projects. With regard to interest expense, this does not affect capital budgeting, and is dealt with later in the project lifecycle