Research Paper 5: Capital Budgeting
Conduct a comparative analysis of the capital budgeting process for new projects versus replacement decisions. The objective is to maximize shareholder wealth.
Your assignment should demonstrate thoughtful consideration of the ideas and concepts presented in the course by providing new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards. Be sure to adhere to the Academic Integrity Policy.
Instructions:
Write a five to seven page APA report not including title and reference pages answering the questions below. Do not just answer the questions, but use the questions to formulate your report. Your paper should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards. Be sure to adhere to University’s Academic Integrity Policy.
Questions to be answered in your report:
Write a research report that outlines the topics –
Identify the steps to the process such as the formulation of cash flows, the development of the cost of capital (i.e., weighted average cost of capital), and the calculation of decision metrics, including the net present value and the internal rate of return.
Utilize the analysis to predict project success/failure in terms of shareholder wealth and other relevant factors. For example, if the net present value of a project is positive, then the project should be undertaken and the expected result will be that shareholder wealth will increase upon the announcement and execution of the project.
Discuss how each of these two types of decision methods are different and formnumerical examples to make your points.
Place special emphasis on how a new project analysis differs from a replacement project.
Assignment Objectives:
The purpose of this assignment for the student is:
Use information technology to complete academic writing and research.
Present written information in a persuasive, organized, clear, and concise manner relying on research, data, and analytics.
Use acceptable paragraph and sentence structure with minimum grammar, punctuation, and spelling errors; and demonstrate appropriate word choice, tone, and format.
Explain how the cash conversion cycle is determined, how the cash budget is constructed, and how each is used in working capital management.
Explain why the weighted average cost of capital (WACC) is used in capital budgeting.
Requirements of the assignment:
All papers must follow all APA requirements including an abstract. (10% deduction if not)
All papers must have a reference page. The textbook is an acceptable source.
Body of the paper 5 -7 pages, no more or less.
Title page, abstract, and reference pages are required. However, they do not count towards any page count.
Writing should reflect an understanding of the chapter’s basic concepts, thorough research, and logic and critical thinking skills.
The introduction is attention getting with sufficient background information to establish the topic and a clear thesis statement.
The conclusion summarizes the main points and leaves the reader with a strong comprehension of the paper’s significance and the author’s understanding.
Grammatically correct – No spelling, grammar, or mechanics errors.
Do not use the first person. (10% deduction if used)
Solution Preview
Abstract
In Organizations, decisions made reflect their performance and the end of specific accounting period. Poor decisions by the management end up affecting the overall performance of the Organization which may result to conflict between the management and the shareholders. This decisions are the ones that misuse the capital and funds of the shareholders instead of promoting their wealth. Capital budgeting involves use of metrics which will help identify the profitability of projects and whether the projects should be implemented or not. Replacement decisions involves purchase of assets to replace the machines and other assets in the Company that are less effective and operational. Various statistics have been used to demonstrate these metrics such as the Net Present Value, the Internal Rate of Return and the payback period.
Key terms: Net Present Value, Internal Rate of Return, Weighted Average Cost of Capital.
Introduction
The ultimate goal of every Organization is to maximize on the profits and the wealth of the stockholders as they minimize on the cost of operations. Apparently, this can only be achieved if these Organizations employ sound decision making processes.
(1,845 words)