Capital Planning, also known as Capital budgeting, (or investment appraisal) is the planning process used to determine whether a firm'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. IRR, Internal Rate of Return helps organizations figure out what the rate of return is on individual projects; what the project earns. This is important to companies as it helps gauge which projects to accept or reject. To accept a project, the IRR is equal to or greater than or equal to the required rate of return.
Explain the rationale for using the IRR to evaluate capital investment projects. Could the IRR for this project differ for GP Manufacturing versus for another customer? IRR = 14.42% Internal Rate of Return is a measurement that investors use to decide whether or not they should pursue a project. The IRR would need to be greater than the required rate of return to do the project. This figure definitely could be different for different customers.
b. The net profit for a company in 2009. Quantitative: I would say the net profit for the company is quantitative, because it is numeric value and we can also ask the question of “how much”. c. The stock exchange on which a company’s stock is traded. Quantitative and Qualitative: If the question suggested that a type of stock within the company is traded for an example a type such as Soft drink versus Juices, then it is Qualitative.
Once the strategic plan is implemented into the development of the organization, a financial plan can be developed to gain capital for organizational growth. A financial problem, which can be encountered by an organization when implementing a strategic plan, is the lack of capital to put the plans in motion. If the organization does not have the financial ability to back its strategic plan, both plans will not be successful. DQ#2: What information is needed to prepare a cash budget? What is the relationship between an operating and a cash budget?
Joanna used the current yield on the 20-year Treasury bond as her risk-free rate. According to exhibit #4, this was at 5.74%. We felt that this was too aggressive and believe that a more conservative estimate was in order. We did some searching on the Internet and found that a 90-Day Treasury Bill is most often used. “ Risk-free Return: The risk-free rate is a theoretical interest rate at which an investment may earn interest without incurring any risk.
He believes that the premoney valuation of the company should be at least $10 million based on the potential profitability of the company and the successful efforts to date in lining up several key sponsorships with national retailers. You have been hired by Chapin as a consultant to advice on the valuation and how to negotiate with Biddle. Please use the following topics as a GUIDELINE ONLY: 1. How good an investment opportunity is Mindersoft? What are the key strengths and weaknesses of the opportunity and business plan?
This is putting your action points from the Decide stage into action to achieve the goals laid out in the assess stage – whether it is shopping around for the best value financial products, or looking for ways to increase your income. The Review Stage is essential, and
This document will discuss the purpose of pro forma financial statements. It will then illustrate how to prepare pro forma statements. Finally, it will identify some of the limitations involved in preparing and using pro forma statements. PURPOSE OF PRO FORMA FINANCIAL STATEMENTS Pro forma financial statements show the financial impact of achieving management’s forecasted level of sales and the projected costs associated with achieving those sales. Quantifying the impact of those projections enables management, the board of directors, and current and prospective shareholders and lenders to: 1.
Explain the rationale for using the IRR to evaluate capital investment projects. Could the IRR for this project differ for GP Manufacturing versus for another customer? IRR= 14.1% (cell B70) IRR is used to decide whether investors should make long term investments. IRR depends on how much a company actually makes so it will be different for everyone 4. Suppose one of GP Manufacturing’s executives typically uses the payback as a primary capital budgeting decision tool and wants some payback information.
Can the firm repay its loan within a reasonable period? 3. What are the key driver assumptions of the firm’s future financial performance? What are the managerial implications of those key drivers? That is, what aspects of the firm’s activities should Koh focus on especially?