Assist with the design of their capital budgeting system
Course:- Financial Management
Reference No.:- EM13881830

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Q1. The CEO of Victoria Chemicals PLC observed how Lucy Morris and the other division managers interacted during the capital budgeting analysis. She asked you, an expert consultant, to review the decision process. Do you think that the process and/or the company's policy should be changed? If yes, what do you suggest to change and why? If no, why?

Q2. You are an expert consultant who has the opportunity to help with a startup funded by an entrepreneur with substantial resources. The company will produce and market revolutionary hybrid cars. Along the way, the company will face many trade offs and will need to perform cost-benefit analyses.

Your job is to assist with the design of their capital budgeting system. If you feel that there are important elements of this story that are missing, you should first fill them in with your own (creative) assumptions.

Be very clear about these details.Then develop your proposal. Be specific with respect to your recommended methodology, data requirements, and approach.


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Net Present Value:
This is the technique that values the present costs of the present value of the benefits when compared with the amount of the capital that has been invested in the project. This just shows the present values of the benefits are less than the present value of the cost. The present value cost is the initial cost of the capital investment. In respect of the Present value benefits, the projected cash flows are multiplied by the minimum rate of return, which is the cost of capital for each of the years of the economic life of the fixed asset. Then the present value benefits are added to all the years and then the present value costs are subtracted from the stated number in order to get the net present value. The project that has the highest amount of the net present value if selected. Further, the project with the positive net present value for the independent capital assets and the one with the highest net present value for the mutually exclusive capital assets is chosen.

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