Capital Budgeting Analysis and Evaluation

Running head: ACCOUNTING 0
Accounting

ACCOUNTING 1
Case 2 Analysis
Question 1
The Delores scenario will be presented to the management because the payback period is shortest
and the internal rate of return and the net present value of the project presented by the Delores
are higher than the other projects considered above. The internal rate of return of 30% provides
an insight to the management that the Delores is providing the best possible way to make the
investment. In case of the Arnold the internal rate of return is 11.64% which is lower than the
normal rate of return and the discounted payback period is 2 years and 10 months and thatof case
option b is 2 years and 5 months. Overall the option D is the most suitable option for the
company (DeFusco, et al 2015).
Question 2
The most aggressive option is the option B where the compounding of the cash flows for the
period of the second as well as the third year. Also this option required the company to
immediately reinvest the amount so realized. The compounding increased the payback period
from more than normal and hence the option B is the most aggressive proposal on the basis of all
the assumptions. The discounted Payback period on the other hand is 2 years and five months.
Thought the net present value is positive and the internal rate of return being 25% the proposal D
is the better option for the future growth of the company (Krüger, Landier and Thesmar, 2015).
Question 3
After analyzing all the four scenarios the management does have the ability to control any risks if
they occur however if all the four proposals are considered by the company this will not only

ACCOUNTING 2
increase the value of the company. The four proposals will provide the opportunity to the
company to attract different types of the customers in one go. Based on the different
specifications the investors can choose the proposals on the basis of their choice and preferences
(Daly, Lewis, Corliss and Heaslip, 2015).
Question 4
There are certain factors which help in analyzing the performance of the company not only on
the basis of the financial factors but also helps in determining the non-financial factors that can
have a close impact on the performance of the company. The following factors have been
outlined below.
 Current economic conditions prevailing in the market.
 Changes in technology that may lead to change in the performance of the company.
 Government regulations and laws that affect the performance due to the interest rates and
taxes.
 Tax effects due to the statutory compliance required to be followed by the company.
Question 5
The proposal D is the most appropriate proposal form the point of view of all the assumptions.
The basic reason is the positive net present value and the internal rate of return is higher among
all the fur proposals. The proposal also suggests that this will not only provide the future growth
to the company. Hence the company will be able to attract more potential investors same time.
Case 3 Analysis
Question 1