Capital investments are long-term investments in which the assets involved have useful lives of multiple years. For example, constructing a new production facility and investing in machinery and equipment are capital investments. Capital budgeting is a method of estimating the financial viability of a capital investment over the life of the investment.
Unlike some other types of investment analysis, capital budgeting focuses on cash flows rather than profits. Capital budgeting involves identifying the cash in flows and cash out flows rather than accounting revenues and expenses flowing from the investment. For example, non-expense items like debt principal payments are included in capital budgeting because they are cash flow transactions. Conversely, non-cash expenses like depreciation are not included in capital budgeting (except to the extent they impact tax calculations for “after tax” cash flows) because they are not cash transactions. Instead, the cash flow expenditures associated with the actual purchase and/or financing of a capital asset are included in the analysis.
most preferred method for capital budgeting
week 3: You are a Finance Manager for a major utility company.
Respond to the following in a minimum of 175 words:
- Think about some of the capital budgeting techniques you might use for some upcoming projects.
- Discuss at least 2 capital budgeting techniques and how your company can benefit from the use of these tools.
- Compare your approaches to other students’ responses. How were they similar or different? Why might you use the different approaches shared by your classmates?
week 4:You are writing a book on how to evaluate performance evaluation for a company.
Respond to the following in a minimum of 175 words:
- Think about some of the influences and measures of company performance that you read about this week.
- Explain the use of return on assets (ROA) and the price-to-earnings (PE) ratio in evaluating the performance of a company.
- Write about how to calculate ROA and PE ratio and how market conditions can affect these metrics.
- Share the ROA and PE ratio for a company you are familiar with. What do these metrics tell you about the financial health of the company?
week 5: You are the Chief Risk Officer for a company and you’ve been tasked with identifying the areas where your company is exposed to systematic and unsystematic risks.
Respond to the following in a minimum of 175 words:
- Based on the information you learned this week, what approach would you take in explaining how systematic and unsystematic risks affect risk planning?
- Describe your approach.
- Name 3 or more systematic or unsystematic risks your company might face.
- Think of some implications if your company decides not to be proactive and plan for these risks.
week 6: You are a business consultant who works with new business owners. A new client wants to start a bakery and seeks your advice.
Respond to the following in a minimum of 175 words:
- Based on what you’ve learned from the readings, discuss the advantages and disadvantages of using venture capital as startup funding for a business.
- Describe what approach you would recommend for the client by using the information you researched.
- How does your approach differ from the recommendations of your classmates?
- How might your recommendation change after reading your classmates recommendations?
Requirements: 175 words for each week
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