Capital Budgeting Free Essay, Term Paper and Book Report
Capital Budgeting
Finance 540 Managerial Accounting and Finance Foundation
After careful analysis, our team has decided that it makes sound economic sense to purchase corporation B. Corporation B had outshone Corporation A by yielding a higher Net present Value( NPV), higher internal rate of return (IRR) and larger profitability index (PI). Corporation B had a high NPV of 27,938, IRR of 15.6% and PI of 0.11%, all three key indicators larger than Corporation A.
Net Present Value Method
The two most-used measures for evaluating an investment are the net present value and the internal rate of return. NPV represents the relationship between a project's expected cash flow and the cost of capital. NPV compares the value of a dollar today versus the value of that same dollar in the future, after taking inflation and return into account. If the NPV of a prospective project is positive, then it should be accepted. However, if it is negative, then the project probably should be rejected because cash flows are negative. NPV is primarily used to analyze the profitability of an ......
Word Count: 1555
Page Count: 6.2 (250 words a page / double spaced)
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