Cost capital budgeting
-
Upload
saphira-cats -
Category
Economy & Finance
-
view
73 -
download
1
Transcript of Cost capital budgeting
![Page 1: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/1.jpg)
![Page 2: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/2.jpg)
CAPITAL BUDGETING
Group Members:Nuzzar Naseem
Atya Jan MuhammadMahek SamiAnum Anwar
Submitted to: Sir Tauseef Shah
![Page 3: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/3.jpg)
CAPITAL BUDGETING Capital budgeting is the process in which a business
determines and evaluates potential expenses or investments that are large in nature.
![Page 4: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/4.jpg)
Screening Decisions A screening capital budget decision is a decision taken to determine if a
proposed investment meets certain preset requirements, such as those in a cost
Preference Capital Budgeting: The company compares several alternative projects that have met their
screening criteria -- whether a minimum rate of return or some other measure of usefulness -- and ranks them in order of desirability.
![Page 5: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/5.jpg)
The time value of money (TVM) is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.
TIME VALUE OF MONEY
![Page 6: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/6.jpg)
What is Discounting ? Discounting is the process of determining the present value of a payment or a
stream of payments that is to be received in the future. Given the time value of money, a dollar is worth more today than it would be worth tomorrow. Discounting is the primary factor used in pricing a stream of tomorrow's cash flows.
![Page 7: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/7.jpg)
HARPER COMPANYInitial cost . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .50000Life of the project . . . . .. . . .. . . .. . . .. . .. . . .. .. . .. . .5years.Annual Cost Saving . . . . . . .. . . . . . . .. . . . . .. . . . . . . 18000Salvage Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .00Required Rate Of Return. . . . . . . . . . . . . . . . . . . . . . . .20%
![Page 8: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/8.jpg)
HARPER COMPANYITEM YEARS AMOUNT OF
CASH FLOW20% Factor
Present Value OF Cash Flows
Annual Cost Savings 1-5 18000 2.991* 53838
Initial Investment now (50000) 1.000 (50000)
Net Present Value 3838
![Page 9: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/9.jpg)
Purchase cost of equipment……………432000Annual saving . . .. . . . . . . . . .. . . . . . . . .90000Life of equipment. . .. . . . . .. . . . . . .12YEARS.
REQUIRED:1). Company required pay back period of 4 year or less.2). Company required rate of return is 14%.
![Page 10: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/10.jpg)
PAY BACK PERIODFORMULA
Pay back period = Investment required annual net cash inflow
= 432000 = 4.8 YEAR90000
![Page 11: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/11.jpg)
SIMPLE RATE OF RETURN:Annual cost saving 90,000Less annual depreciation 36,000Annual incremental net operating
Income 54,000
simple rate of return = Annual incremental net operating income Initial investment 54,000 = =12.5% 432,000
![Page 12: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/12.jpg)
![Page 13: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/13.jpg)
![Page 14: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/14.jpg)
![Page 15: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/15.jpg)
![Page 16: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/16.jpg)
![Page 17: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/17.jpg)
![Page 18: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/18.jpg)
![Page 19: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/19.jpg)
![Page 20: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/20.jpg)
![Page 21: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/21.jpg)
![Page 22: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/22.jpg)
![Page 23: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/23.jpg)
![Page 24: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/24.jpg)
![Page 25: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/25.jpg)
![Page 26: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/26.jpg)
![Page 27: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/27.jpg)
![Page 28: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/28.jpg)
![Page 29: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/29.jpg)
![Page 30: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/30.jpg)
![Page 31: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/31.jpg)
![Page 32: Cost capital budgeting](https://reader035.fdocuments.us/reader035/viewer/2022062503/58721f1d1a28ab3f188b7f6b/html5/thumbnails/32.jpg)