Essay About Essence Of Capital Budgeting And First Place

Investment
Investment
The essence of capital budgeting and resource allocation is a search for good investments
in which to place the firms capital. The process can be simple when viewed in purely mechanical
terms, but a number of subtle issues can obscure the best investment choices. The
capital-budgeting analyst is necessarily, therefore, a detective who must winnow good evidence
from bad. Much of the challenge is knowing what quantitative analysis to generate
in the first place.
Suppose you are a new capital-budgeting analyst for a company considering investments
in the eight projects listed in Exhibit 1. The chief financial officer of your company
has asked you to rank the projects and recommend the “four best” that the company
should accept.
In this assignment, only the quantitative considerations are relevant. No other project
characteristics are deciding factors in the selection, except that management has determined
that projects 7 and 8 are mutually exclusive.
All the projects require the same initial investment, $2 million. Moreover, all are believed
to be of the same risk class. The weighted-average cost