Corporate Finance Assignment: Capital Budgeting, Sensitivity Analysis, Scenario Analysis, Break Even Analysis, Simulation Analysis

CORPORATE FINANCE ASSIGNMENT

Contents
INTRODUCTION...........................................................................................................................3
CAPITAL BUDGETING................................................................................................................4
SENSITIVITY ANALYSIS............................................................................................................6
SCENARIO ANALYSIS.................................................................................................................7
BREAK EVEN ANALYSIS...........................................................................................................8
SIMULATION ANALYSIS............................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES:.............................................................................................................................11

INTRODUCTION
An organization can survive in the long run if the decision making process of the management is
carried out efficiently. So, decision making is considered to be a very significant factor on which
a company depends. Any wrong decision taken by the management can lead to to use losses in
revenue or reputation. A decision should be taken only after reviewing all the alternative actions
and choosing the one which is the most appropriate. An appropriate decision helps an
organization to achieve its objectives. Business environment is dynamic in nature and therefore,
it is very important to maintain focus consistently. There are various problems that arise back to
back but has to be eliminated as soon as possible (Berman, Knight and Case, n.d.)...
Everybody in an organization is a part of the decision making process starting from the top
management to the employee level. The implementers help in the execution of decision making
because only then will they prove to be effective in the most adequate manner. There has to be
an existence of certain obligations imposed on the middle and lower management for
implementing large plans in a company. A healthy and good relationship has to be maintained
between the management and the workers for achieving their goals (Bruner, Eades and Schill,
2017) . An efficient corporate decision will help the top management of the company to maintain
stability and remain encouraged throughout. If this does not happen then the company might get
stuck in its own tricks which will harm the company and its competition in the market.

CAPITAL BUDGETING
Capital budgeting helps to take investment decisions. It takes into consideration the calculation
of various expenses and investments which are considerable very large. It has to take investment
decisions relating to a new project which can be about the installation of a new plant or any other
long term investment. In a capital budgeting process, the cash inflows and outflows for a
particular project is ascertained and then and evaluation processes carried out to know if the
project will be able to derive potential results or not. This process has also been given the name
of "investment appraisal". This process helps in examining the different opportunities that are
available to the company and help them to know no which project to accept and which to direct
because the availability of capital is very limited at a specified point of time (Clarke and Clarke,
1990).
There are various methods by which capital budgeting process can be carried out. Few of them
are discounted cash flow analysis (DCF) , net present value (NPV) , internal rate of return (IRR)
and payback period. These methods are explained below:
 DCF analysis- The NPV analysis and the DCF analysis are very similar to each other
because the inputs required for taking the decision is very similar to each other. It takes
into account the initial cash flows which will be required to find a project, the cash
inflows and outflows that will happen during the term of the project. All these cash
flows are discounted at the current rate and the results derived from it are called the net
present value.
 NPV method- The difference between the present value of cash inflow and cash outflow
is said to be the net present value. It helps in the determination of the profit that can be
derived from long term projects (Fairhurst, 2015).
A positive net present value means that the expected return is Greater to the cost whereas
the negative net present value gives an indication of financial loss.
 Discounted payback period- This capital budgeting method helps us to know the time
period which will help us to recover the initial expenses incurred. We can calculate the
discounted payback period by discounting the future cash flows by taking into
consideration the time value of money.