Capital Budgeting Individual Project Assignment

detonating device Budgeting Individual Project - Assignment ExampleStrategic mean is important to the future success of a business enterprise. Capital budgeting is one of the ways that can supporter a company achieve its long term success through proper planning. Lack of penny-pinching road map that a strategic plan provides, may lead to misallocation of company resources through addressing short issues. This would in turn compromise the long term needs of the company. Necessary Information Sparklin Automotive familiarity (SAC) has been a successful company within the automotive manufacturing industry, operating since the last eight decades. The company has roll in the hay up with an innovative idea to launch a new spark plug which offers an enhanced fuel consumption rate to vehicles i.e. up to 100,000 miles. In crop to initiate the new spark plug production, the company needs to destiny up a new manufacturing plant which would need to be analyzed financially in order to co nsider it viable for SAC. The entire setup would require information pertaining to the cash inflows and the cash out(a)flows that would occur as a essence of carrying out the production of the new spark plugs. The financial information that would be needed should only include the relevant costs that would only be attributed as a result of carrying out the new spark plug production. ... owing data would be used to evaluate the cap abide The new spark plug plant would need an initial investment of $1 billion in 2013, which would further be followed by anformer(a) $500 one million million million investment in 2014. The cash inflows that argon expected as a result of this investment atomic number 18 $300 million (2015), $350 million (2016), $385 million (2017), $400 million (2018), $450 million (2019), and $500 million (2020). All of these expected inflows are considered to be after- taxation inflows. It is besides expected that the new plant would not attract any Capital Gains hence no tax savings would be gained. SACs current cost of capital is 10%. Capital budgeting The trustworthys senior financial officers are faced with two important tasks in a firm. unrivalled of the tasks is to make decisions for improving the companys return on equity. The other task is to find up to(predicate) funds for investment opportunities that may arise (Dayananda, 2002). Capital budgeting is the process in which a business solicitude determines whether projects such as long-term investment or building a new plant are worth undertaking. Basically, business should pursue all opportunities and projects that will increase shareholders value. However, because of limited reputation of capital available for new projects, management needs to implement capital budgeting techniques to determine which will result to high return on a given period of time. Weighted Average Cost of Capital (WACC) Weighted Average Cost of Capital is the calculation of a firms cost of capital that i nvolves proportionate weighting of each and every category of capital. When calculating the firms weighted fairish cost of capital, all capital stock such as preferred stock, common stock, bonds, and any other long-term debt are all included. The formula