Here we develop the theory and application of capital budget analysis. Capital budgeting is arguably one of the most critical functions that financial management performs.
This is not a term paper, 4 paragraphs or 5 will suffice, along with the sample calculations.
Imagine that you own a business. Assume that this business is very successful. Dream about this for a minute. Then, briefly describe the business and its activities. Explain the product or service and the location of the business. The business is a pizza restaurant, located in Washington, D.C.
1. Assume that your business is so successful that you feel that you need to open a second location, or factory (as appropriate to your idea.) How will you determine whether or not this is a good idea? In other words, what financial management tools do you have at your fingertips that you can use to help you make this decision? Please explain your choices, and which tools you feel would be most useful. Give us a sample calculation for each one.
2. Once you have decided to expand, how will you finance this endeavor? What are your choices? Please discuss each option and explain your choice. THINK REALLY BIG on this one. How would get a hold of A LOT of money?
HINT – I am looking for you to incorporate concepts from previous units. What are the advantages of the options you have chosen?
Some of the concepts we have used are the following, choose 2 or 3 (that make sense) to complete the assignment and discuss why those options were chosen.
DuPont Analysis, Return on Investment Ratios
Operating Cycle and Cash Conversion Cycle Ratios
Liquidity and Profitability ratios
Activity and Leverage Ratios
FV and PV of a single amount annually
Find Number of P erios or Find Growth Rate
FV & PV of a Single Amount Non-Annually
FV and PV of Ordinary annuity Annually
PV of Mixed Stream
FV and PV of annuity due annually
FV of mixed stream
Perpetuity, EAR, RRR
Bond Current Yield
Value of Bond Annually
Value of the Bond Semi Annually
YTM annually, semi annually
Bond yield to call YTM and Price After Original Issue
Bonds and Quotes
Value and Expected rate of return on preferred stock
Value of Common stock, Expected rate of return on Common Stock
CAPM, Beta Portfolio, Portfolio expected return
Expected return and standard deviation on stock using probabilities
HPR, Annualized holding period return, effective annual rate of investment
Payback period and discounted payback period
IRR and MIRR annually and semi annually