Capital Budgeting Case

Capital Budgeting Case

Capital Budgeting Case

Making an investment is not an easy task. When given the opportunity to make an investment the person spending their money has to be careful and analyze the situation before they spend their money. In this case an individual with $2500,000 dollars to invest has a choice between two companies which are currently in operation. The person has to make the right choice because they are limited to choosing only one of the two companies to purchase so the investor has to make the right choice.

To make the choice the investor had to apply the information that was available and create an income statement and spreadsheet that shows how the two companies are projected to perform over the next five years. These numbers are vital if the prospective owner wants to get an accurate picture of the way the company will make the money spent back into the company. Based on the information found with the data I would recommend company B. The major reason I would Recommend Company B is because Company B has a higher net present value. Traditionally Net present value has been the most powerful tool for making determinations and projections for investors. Company B also has a higher Internal return rate which is also a good sign for the company. These two factors are indicators of how the company will perform. The investor wants to make the safest investment because $250,000 is a large investment.

Let us look at the numbers a little closer. When we look more at the numbers we see that company A has a higher net income than Company B but, company B has a higher cash flow and this is a factor in the decision and when you combine that with the discount rate you can see company B looking more attractive. It looks more attractive because Company B is not far behind Company A in net income but has clearly surpassed company A in some key areas which not only closes the gap it puts company ahead of Company A. Company has higher expenses...