Discussion 1: The Basics of Capital Budgeting: Evaluating Cash Flows
A. What company are you examining for Assignment 1 and what major capital budgeting projects are planned? Are these appropriate projects for this company?
How will the capital budgeting projects help the company?
Did you learn anything about how the company makes decisions about capital budgeting projects?
Note: The company’s Form 10K report and Annual Report would be good sources of information.
B. * From the e-Activity, analyze the reasons why the short-term project that you have chosen might be ranked higher under the NPV criterion if the cost of capital is high, while the long-term project might be deemed better if the cost of capital is low. Determine whether or not changes in the cost of capital could ever cause a change in the internal rate of return (IRR) ranking of two (2) such projects. Provide an example of such a change—or the lack of one—to support your position.
Week 6 e-Activity
• Use the Internet to research two (2) mutually exclusive investment projects to compare. The projects may involve any kind of investment, as long as the time frame for one (1) of the investments is a maximum of one (1) year (short term) and the time frame for the other investment is five (5) years minimum (long term). Be prepared to discuss.
Discussion 2: Cash Flow Estimation and Risk Analysis
A. If a firm decides to structure a project so that expenditures may be made in stages rather than all at the beginning, how would this affect the project’s risk and expected NPV? Support your position with one (1) real-world example of such an effect.
B. * From the scenario (SEE ATTACHMENT) , suggest whether TFC should undertake its expansion project. Provide a rationale for your response in which you cite at least two (2) capital budgeting techniques (e.g., NPV, MIRR, IRR, Payback Period, etc.) that you used to arrive at your decision.
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