1. As you continue discussing and providing examples of capital expenditure from your industry, as your colleagues describe their capital budgeting opportunities, read them as if you were a financial advisor to their companies. What other capital budgeting considerations should they be taking into account? What questions do you have for them?
Just a friendly reminder to gain a full credit you should provide proper in-text and end-text citations to support your points. For more information see the website below:
https://owl.english.purdue.edu/owl/section/2/10/
2. let's continue our discussions with capital budgeting. As you have discussed so far capital budgeting helps financial managers to identify which project is more profitable, add value to a firm, based on its cash flow. It involves analysis of potential projects, long-term decisions; involve large expenditures, and very important to firm's future.Projects are:
Independent, if the cash flows of one are unaffected by the acceptance of the other.
Mutually Exclusive, if the cash flows of one can be adversely impacted by the acceptance of the other.
How do we figure out?
There are six methods to do so;
1. Net Present Value (NPV)
2. Internal Rate of Return (IRR)
3. Modified Internal Rate of Return (MIRR)
4. Profitability Index (PI)
5. Payback
6. Discounted Payback
Steps in capital budgeting:
Estimate cash flows (inflows & outflows):
Assess risk of cash flows.
Determine r = WACC for project.
Evaluate cash flows.
I have provided examples in my recent post for Topic 1. As you continue your discussions, please provide different examples for some of the above mentioned methods.