Ask a question from expert

Ask now

Methods Of Capital Budgeting Assignment

10 Pages2531 Words263 Views
   

FIN200 Assignment - Corporate Financial Management (FIN200)

   

Added on  2019-11-08

Methods Of Capital Budgeting Assignment

   

FIN200 Assignment - Corporate Financial Management (FIN200)

   Added on 2019-11-08

BookmarkShareRelated Documents
Running head: CORPORATE FINANCIAL MANAGEMENTCorporate Financial ManagementStudent’s NameCourse Code
Methods Of Capital Budgeting Assignment_1
1CORPORATE FINANCIAL MANAGEMENTIntroductionUncertainty hovers over every project when it is started and determination of risks iskey for making decisions which is required by the managers. Big companies are known toincorporate tough ways to tackle risks in case of capital budgeting (Gitman, Juchau andFlanagan 2015). Therefore, every manager should know the methods of risk assessment. Themain jobs of corporate managers are to make profits for their company but they should alsoknow how to mitigate risks.Capital budgeting related to sensitivity analysisOne of the several methods for identifying risks is sensitivity analysis which assists inshowing the alterations in NPV related to the applied change of a variable given as input onthe contrary when other things stay the same (Slagmulder, Bruggeman and Wassenhove2013). Input variables are determined with their base value by the managers to conductsensitivity analysis. The base value is the most relevant value which is deemed to occurpredicted by the corporate manager.When determination of base value is done then requirement of testing the net presentvalue of the sensitivity of the cash flow is there which is related to the variation in variableconcerned with some percentage of units that keeps other variables constant. It is important tonote that the change in values must be made keeping the relation of amount of products soldand cost in mind (Burns and Walker 2015). It can be argued that, sensitivity analysis is thekey in showcasing the effect of changes which occur in taking assumptions. It must bementioned that sensitivity analysis supports decision making for various capital budgeting. Italso helps the managers to notice how the possible NPV are distributed and the impactperceived by the internal return rate of the project which is under discussion. It also oversees
Methods Of Capital Budgeting Assignment_2
2CORPORATE FINANCIAL MANAGEMENTthe influence in a specific input variable. At any given time, managers taking the decisionsare needed to create assumptions regarding the project in a way that time taken, amount ofsales units in the project and the capital cost is considered.Corporate managers need to know about the authenticity of the assumptions and theexpected changes in the final outcome of the project so that they cannot make incorrectassumptions (Fama 2014). The process of measurement of sensitivity of the outcomes takingpart in the speculations for the project is known as Sensitivity analysis. In this, alteration ofone speculation is done to keep others intact which will determine the changes which willoccur in NPC and IRR. Cash flows are being foretold by the managers at the time of capitalbudgeting.Sales forecast and the cost are the fundamentals on which other systems of cash flowforecasting is done. Sales volume and selling price of a unit is reflected by the sales revenue.Market shares of the organization and size of the market depends of the sales volume of theconcerned project. Analysis of the tax cash flow done by the concerned managers determinesthe IRR and NPV (Grob 2013). This is computed by adding different variables of discount,cash flows, rate and project life. Hence it can be said that each variable is uncertain in mostcases. Variables which are set for the project are sensitive and their degree if sensitivity isdetermined by doing sensitivity analysis. Therefore, the sensitivity of IRR and NPV isdetermined by the analysis about alterations in a specific variable. Capital budgeting related to Scenario analysisAs depicted in scenario analysis, one variable is changes at appoint of time. Since allvariables are correlated, as they must be to be relevant in all cases when each scenarioportrays different combination of variables. Scenario analysis is termed as the approach ofbehaviour and is same as sensitivity analysis but has a wider perspective (Brunzell, Liljeblom
Methods Of Capital Budgeting Assignment_3

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
FIN200 Corporate Financial Management Assignment
|11
|2716
|68

Capital Budgeting Assignment PDF
|13
|2466
|1476

RISK MANAGEMENT ANALYSIS FOR PECULAR BUDGETING
|14
|2747
|264

Frontiers in Ecology and the Environment - PDF
|8
|1525
|41

Capital Budgeting Techniques Assignment
|14
|2489
|224

Risk Analysis in Capital Budgeting Techniques
|14
|3345
|412