Capital Budgeting

Capital Budgeting Financial Management- FIN 534 Problem 23A For the base-case scenario, what is the NPV of the plant to fiction jackanapes trucks? Bauer Industries is an automobile manufacturingr. Like any other company, the steering team is considering making an trustment and must consider all aspect before accepting a proposal. Bauer Industries must measure out their proposal to build a plant that will manufacture lightweight trucks. The company has set a 12% constitute of crown. IT is important that the proposal has positive NPV or it will not be a smart business move for Bauer Industries. NPV is be as the difference between the exemplify value of its benefits and the attest value of its cost. The formula holdd to calculate net present value is NPV=PV (benefits)-PV (costs). Many companies consider the formula the golden discover for financial decision making. Decision makers look for positive NPV or the investment is not considered. In this case, the NPV of the plant to manufacture lightweight trucks is positive. NPV=-150 x 36 x 1.12(1-11-12x9)+481.12x10=57.3 million Problem 23B What is the NPV of this project if revenues atomic number 18 10% higher than forecast? What is the NPV if revenues are 10% sink than forecast?

Sensitivity analysis is another great capital budgeting tool to use when evaluating investments or making business decisions indoors a firm or company. If a company use the sensitivity analysis, the company are able to divide the NPV calculations into assorted groups of assumptions. This process then will show how NPV varies to change. This can all be positive or negative. While Bauer Industries are considering this venture, they are smart to be uncertain about their projected assumptions when in reality their forecast could generate totally opposite results. The sensitivity analysis also gives data that can be apply to determine which assumptions are most important. This will allow Bauer Industries to invest and refine their... If you want to get a full essay, couch it on our website: Orderessay

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