Reflection Advantages Essay

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Capital Budgeting Case Your company is thinking about acquiring another corporation. You have two choices—the cost of each choice is $250,000. You cannot spend more than that, so acquiring both corporations is not an option. The following are your critical data: Corporation A Revenues = $100,000 in year one, increasing by 10% each year Expenses = $20,000 in year one, increasing by 15% each year Depreciation expense = $5,000 each year Tax rate = 25% Discount rate = 10% Corporation B Revenues = $150,000 in year one, increasing by 8% each year Expenses = $60,000 in year one, increasing by 10% each year Depreciation expense = $10,000 each year Tax rate = 25% Discount rate = 11% ********************************************************************* Based on Corporation A and B analysis, the recommendation would be to acquire Corporation B based on their higher level of net present value over Corporation A. The recommendation is based on the following criteria Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, Profitability Index (PI), Discounted Payback Period and Modified Internal Rate of Return (MIRR): Table 1 – Comparison Analysis | |Corporation A |Corporation B | |NPV |$20,979.20 |$48,035.14 | |IRR |13.05% |16.94% | |Payback Period |3.64 years |3.3 years | |Profitability Index |1.08 |1.19 | |Discounted Payback Period |4.6 years

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