Qrb/501 Quantitative Reasoning for Business

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Capital Budgeting Case Study Name QRB 501 Date Instructor Name Capital Budgeting Study Case The purpose of this study is to understand Capital Budgeting and expenditures in Banking and how it is used. The intent is to answer questions such as the 5-year projected income statement, projected cash flow, Net Present Value (NPV), Internal Rate of Return (IRR) and which company to recommend acquiring based on the information given. We will look into these analysis to get a better understanding. 5 Year Projections Corporation B had higher expenses, depreciation and discount rate that corporation A. The tax rate was the same for both companies over a 5 year period. We used the Capital-Budgeting Decision criteria in determining which company to invest it. By using the capital budgeting process, we were able to decide which company to accept or reject. Financial decision tools allowed us to understand the risk involved and find the best fit for our investment. Net Present Value The NPV or Net Present Value is the difference in the present value of the way cash flows in and the present value of the way cash flows out. NPV takes into consideration the returns and inflation as it compares the future value of a dollar to the current value of a dollar. Using NPV in capital budgeting, each company is able to determine if an investment of a project should be taken into consideration. Positive cash flow for any investments or projects happen when the NPV is positive. Both Company A and Company B question future cash flows that will be generated over the first five years of operation. Businesses use the NPV to determine if a purchase or investment is profitable. Once that is decided, they look at the lump sum value above the capital budget period is more than the amount of the company being sold. If the seller refuses to sell the company less than the lump sum

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