Financial Management of Corporate Projects

Running Head: Financial management of corporate projects
1
Project Report: Financial management of corporate projects

Financial management of corporate projects 2
Contents
Introduction.......................................................................................................................3
Capital budgeting..............................................................................................................3
Types of capital budgeting............................................................................................4
Uses of capital budgeting..............................................................................................5
Effects of capital budgeting..........................................................................................5
Pros and cons of capital budgeting...............................................................................5
Business overview............................................................................................................7
Investment overview and Capital budgeting analysis......................................................8
Recommendation and Conclusion..................................................................................13
References.......................................................................................................................15

Financial management of corporate projects 3
Introduction:
Capital budgeting is a technique of investment proposal and appraisal which is
basically a planning process that is used by the organizations and the financial manager of a
business to analyze that whether the project or the business plan would offer the long term
returns to the business or the investment into that business would lead to the company
towards the loss (Kaplan and Atkinson, 2015). The capital budgeting techniques process
evaluates the new machinery, new business plan, expansion of the business, replacement of
the property, plant and machinery, research and development projects, new products, new
planets etc which are worth of the funding of huge cash equivalents and the cash through the
overall capital structure of the firm. It includes the equity, debt and retained earnings.
Applying the capital budgeting technique at the initial phase of a business leads to the
business owners and the executives of the business at a better way of decision making. This
process makes it easier for the business owner to make a decision about the acceptance of the
new project or not. This process explains about the allocating of the resources for the
investment or major capital or expenditure (Jiashu, 2009). One of the important goals of the
capital budgeting investment is to enhance the value of the business among the shareholders
and at the security market.
In the report, a new business has been evaluated and it has been measured that whether
the business would offer higher returns to the company or not. The new business plan
explains about a new business which would be start up by the entrepreneurs in the South
Africa. The business would be related to the manufacturing and delivering of dairy products
in the South Africa market. The case explains that the Minenhle and Bokamosos, two friends
would start this business. The report focuses on the overall cost and the revenues from the
business and measures that whether the investment into the company would be profitable for
the business or not. In the report, various techniques of the capital budgeting has been
applied on the business to measure the overall position of the business.
Capital budgeting:
Business owners and the executives of the business are always responsible for
evaluating and managing the different functions of the business. Corporate finance is also
among those tools which are applied by the financial manager of the business to conduct the
capital budgeting process on the business. Financial planning process contains the various

Financial management of corporate projects 4
processes which must be followed by business owners and the entrepreneurs to accomplish
the carious goals of the business (Horngren, 2009). Capital budgeting is a tool which is used
by the business to find out the profitability level of the long term investment.
Capital budgeting involves various corporate finance formulas to assess the financial
return of the business opportunities of the business. The mathematical calculations offer the
business owners about the quantitative analysis which is used on the basis of the internal and
external economical and financial data. Business owner use the corporate finance formulas to
take the guess work about the various important decisions related to the capital of the
company and the investment into that particular project. Capital budgeting could also use the
qualitative analysis which is absolutely necessary for the business owners to make a decision
about the process of the company (Hillier, Grinblatt and Titman, 2011). Qualitative analysis
is the personal judgement of the business owners and he managers about the financial
analysis.
Types of capital budgeting:
The capita budgeting tools are of various types which include the different formulas
and result about the new business and the investment proposal of the company. Mainly, the
types of the capital budgeting include net present value tool, payback period, discounted
payback period, average rate of return, internal rate of return, profitability index etc. The net
present value formula estimates the cash outflow of the business and future cash inflow of the
business in current value (Gapenski, 2008). The future cash inflows of the company are
multiplied by the present value factor of the market to identify the current profitability
position of the business.
On the other hand, the discounted payback formula estimates the cash outflow of the
business and future cash inflow of the business in current value. The future cash inflows of
the company is multiplied by the present value factor of the market to identify the total time
period in which the total invested amount in the business would be get back by the company
on the basis of the present value factor (Higgins, 2012). In addition, the payback formula
estimates the cash outflow and future cash inflow of the business. The payback period
calculations is done in which the total invested amount in the business would be get back by
the company.
Further, the internal rate of return concept briefs that the internal return of a project
must be higher than the discount rate of the company as the internal rate of return presented