Capital Budgeting Case
Week 6: Capital Budgeting CaseQRB/501 The purpose of this weeks 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 ARevenues$100,000 in year one, increasing by 10% each yearExpenses$20,000 in year one, increasing by 15% each yearDepreciation expense$5,000 each yearTax rate25%Discount rate10%
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 BRevenues$150,000 in year one, increasing by 8% each yearExpenses$60,000 in year one, increasing by 10% each yearDepreciation expense$10,000 each yearTax rate25%Discount rate11% 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%.