Capital Budgeting Methods for Project Evaluation - Business Case Study 2

Assessment 3: Business Case Study 2

EXECUTIVE SUMMARY
Capital budgeting can be used to evaluate the feasibility of a new project such as
investment in new equipment, plant or replacement of a product line, machine etc.
(Accounting Explained, 2017).
There are several methods that can be used in capital budgeting. These methods
include the payback period (or PBP), discounted payback period, the internal rate of
return (or IRR), the net present value (or NPV) and profitability index. These methods
are quantitative and may be used in a combination or alone.
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TABLE OF CONTENTS
EXECUTIVE SUMMARY.........................................................................................................................1
TABLE OF CONTENTS...........................................................................................................................2
CHAPTER 1 : CAPITAL BUDGETING..................................................................................................3
1.1 Introduction – Project Evaluation Methods.................................................................................3
1.2 Discount Rate.................................................................................................................................3
1.3 Assumptions....................................................................................................................................4
1.4 Risk Assessment -Base Scenario................................................................................................5
1.5 Project Feasibility under Base Scenario.....................................................................................5
1.6 Risk Assessment -Sensitivity Tests.............................................................................................6
1.7 Project Feasibility under Sensitivity One.....................................................................................6
1.8 Project Feasibility under Sensitivity Two.....................................................................................6
1.9 Project Feasibility under Sensitivity Three..................................................................................6
1.10 Conclusion and Recommendations...........................................................................................7
References...................................................................................................................................................8
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