Capital Budgeting Case
Autor: danelleunger • April 28, 2015 • Case Study • 311 Words (2 Pages) • 1,142 Views
Week 6: Capital Budgeting Case
QRB/501
The purpose of this week's paper is to evaluate two companies in terms of their potential to acquire. Capital investment is limited to a total of $250,000 (UOP, 2015). Due to this limitation purchasing both companies is not viable (UOP, 2015). The Net Present Value (NPV) and the Internal Rate of Return (IRR) were calculated depicting the following results.
Corporation A
Revenues | $100,000 in year one, increasing by 10% each year |
Expenses | $20,000 in year one, increasing by 15% each year |
Depreciation expense | $5,000 each year |
Tax rate | 25% |
Discount rate | 10% |
Over a five year period applying the 10% discount rate to an initial investment of $250,000 the NPV is $20,979.20 The corresponding IRR is 13.03%.
Corporation B
Revenues | $150,000 in year one, increasing by 8% each year |
Expenses | $60,000 in year one, increasing by 10% each year |
Depreciation expense | $10,000 each year |
Tax rate | 25% |
Discount rate | 11% |
Over a five year period applying the 11% discount rate to an initial investment of $250,000 the Net Present Value is $40,251.47. The corresponding IRR is 16.94%.
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