Capital budgeting and cash flow risk

Assessment item 3

Contents
Part A.......................................................................................................................... 3
Part B.......................................................................................................................... 4
Introduction............................................................................................................. 4
Answer 1................................................................................................................. 5
Answer 2................................................................................................................. 6
Answer 3................................................................................................................. 7
Answer 4................................................................................................................. 8
Answer 5................................................................................................................. 9
Answer 6............................................................................................................... 10
Answer 7............................................................................................................... 11
Answer 8............................................................................................................... 12
Conclusion............................................................................................................. 13
Bibliography................................................................................................................ 14

Part A
Other than modeling ‘best case’ and ‘worst case’ projections, discuss and describe what
other capital budgeting approaches could be taken to allow for the increased riskiness of
the estimated future cash flows
The capital budgeting is a process of evaluating the project and help in making decision whether
the project should be accepted or rejected. In the above case Net Present Value and Profitability
Index is used to evaluate the investment proposal by Online Jeans Sales. The investment
proposal is giving more return than the required rate of return by the company that is 16%. But
the company does not know that how much return is obtained by accepting the proposal. The
accurate rate of return of the project can be calculated by the Internal Rate of Return Method
( IRR ). IRR is used by the management of the company to calculate that which project is giving
higher return and the project with higher return will be accepted (Fuss, 2004).
Discuss whether the above proposal should be accepted. Discuss any further information
that you may require to help you make the accept/reject decision about this project
The above proposal should be accepted by the online jeans sales because it is giving positive
return in the Best case and the Base case. The Net present value is negative only in the worst
case which has the less chance of occurrence. The chances of occurring worst case is 1/3 and the
chances of getting positive Net Present Value is 2/3 which is higher. The Online Jeans sale can
accept the proposal on the basis of the result of any of the capital budgeting techniques. The
result of all the techniques is favorable in accepting the Investment proposal except in worst case
(Habib, Khan, & Wazir, 2016).

Part B
Introduction
APN Outdoor is a listed company in the Australian Stock market. This organization deals in
providing outdoor advertisement services across the Different parts of Australia and New
Zealand. The main emphasis of this organization is customer satisfaction for which it is
consistently engaged in research and development for the enhancement of efficiency of their
services. The APN Outdoor is providing various types of advertisement services through
following means:
 Digital Billboards
 Static roadside Billboards
 Transit (bus and tram) advertising
 Rail (train and station) advertising
 Airport advertising
The APN Outdoor gives service in Australia and New Zealand and will give access to more than
50,000 panels for advertisement. Most of these panels are in the most prominent location for the
purpose of advertising.