Capitall Budget

Capital Budget

QBR/501

November 3, 2013

Capital Budget

After working on Corporation A and Corporation B the analysis present that Corporation B is more profitable and has a greater rate of return and that is a recommended option, so Corporation B is the recommended option.

The capital budget analysis is a process in which a business or corporation determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing ("Capital Budgeting", 2013). According to Capital Budgeting website “Popular methods of capital budgeting include net present value (NPV), internal rate of return (IRR), discounted cash flow (DCF) and payback period.”

According to Keown, Martin, & Petty. (2014) the internal rate return is the rate of return that project the earnings; it is also the discount rate that equates the present value of the project. If the IRR is more or equal than the required rate of return or capital cost the project will be accepted; if is less the project will be rejected. In the case of Corporation A and B both corporation can be accepted. Corporation B has a greater rate of return and is the recommended.

Net Present Value (NPV) is define as the difference between the present value and the cash flow. NPV is a tool using on capital budgeting to analyze the profitability of the investment (Net Present Value, 2013). According to Net Present Value 2013, “If the NPV of a prospective project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative.” Corporation A and B both have a positive Net Present value, both corporation should be accepted in this case Corporation B is more profitable and is recommended.

Net Present Value (NPV) and Internal Rate Return (IRR) are measurements used on a capital budget. According to Bass (2013) the relationship between NPV and IRR is that with both, the company can evaluate cash inflows and...