Capital Budgeting Report: Analysis of PENTAG's Q-Powerboat Project

This report provides a comprehensive analysis of PENTAG Company's capital budgeting decision for its Q-powerboat project, focusing on the evaluation of an environmentally friendly powerboat. The report begins with an executive summary and table of contents, followed by an introduction that sets the context of the project, highlighting the company's shift towards eco-friendly manufacturing in response to global trends. The study incorporates both quantitative data, such as investment costs, revenue projections, and tax rates, and qualitative data, including discussions of capital budgeting techniques like Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period. The analysis includes recommendations for improving capital budgeting practices, such as simplifying techniques and implementing rolling forecasts. The report compares quantitative and qualitative data analysis and provides a conclusion summarizing the key findings and recommendations, which is supported by a list of relevant references. This analysis is a response to the assignment brief which asked for a capital budgeting report considering the given scenario, forecast errors, and risk assessment.

Running head : ACCOUNTING AND FINANCIAL MANAGEMENT
Accounting and financial management
Name of the Student
Name of the University
Author’s note

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Executive summary:
The case study deals with the capital budgeting technique which have been
implemented within the organization in manufacturing the environmental powerboat and
whether the same technique could be implemented within the organization along with an
analysis in the quantitative and qualitative data processing. The study is supported with a
suitable conclusion at the end.

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Table of Contents
Introduction:...............................................................................................................................3
Data findings:.............................................................................................................................3
Quantitative data:...................................................................................................................3
Qualitative:.............................................................................................................................4
Recommendations and justification:......................................................................................5
Keeping the technique simple:...........................................................................................6
Implementation of rolling forecast:....................................................................................6
Detailed comparison and further recommendation:...................................................................7
Conclusion:................................................................................................................................8
References :................................................................................................................................9

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Introduction:
The above case study deals with the financial details of the PENTAG Company which
is an Australian organization focusing on the manufacturing of powerboats. Since the
globalization is a major issue now a days the company is focusing on manufacturing
environment friendly boats. However their new innovation is facing some challenges in the
market relating to the manufacturing of the eco-friendly boats. Hence the main focus of the
study is to analyse whether the company would be able to make sure that there project is
beneficial for the environment and improve the transport system by using some necessary
calculations like net cash flow with the help of capital budgeting technique.
Data findings:
Quantitative data:
Quantitative data refers to the data which are related to the valid calculations provided
in support to the project. Hence it is important that the valid details are provided in relation to
the project and make a judgemental analysis on whether the project is going to be suitable for
the company or not (Rossi, 2015) . However the same situation can be implemented in the
case of PENTAG Company

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From the above details it is seen that PENTAG Company have invested more than $6400000
million money for five years in which the net revenue have been considered as $20 million.
However the company’s cost of tax is initiated at 30% rate (Hornstein 2013). Apart from that
it is also seen that the company investment in the fifth year have been considered as at an
approximate value of $37200000. However the tax payment has been most during the fifth
year because of increase in the net products and service. Hence due to the increase in the
product quality and business variables the company have managed to increase the business
profits and improve the business stability of the company. However the net opportunity cost
have also increased to approximately $12000000 million dollar whish have happened due to
the increase in the business profitability of the company and attempting to use new improved
techniques like use of environment friendly speed boat which will curb down the pollution
and made keeping eye on the globalization. However the company had faced some issues
regarding the market capture of the products of this company. Hence all these factors have
put an immense effect on the revenue of the company and they have managed to survive
besides having ample number of competitors. Therefore the total cash flow for the fifth year
have been increased quite a high and it is indeed a good sign for the company. The net
present value have also increased during the year. Hence despite of all these factors it is good
project to go for since it focuses environmental aspect which happens to be a big concern for
the company (Malenko 2018 ).
Qualitative:
The qualitative work refers to the different theories related to the actual topic which is
presented to support the main topic of discussion. However new theories emerging day by
day which are more updated and properly formulated. But the basic remains the same. Hence
it is important that each details should be supported with a much needed theories. However in
this case the PENTAG Company have started manufacturing new and environmentally

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supported power boats. Hence the qualitative works provide details about whether the
decision taken by this company is at all supportive in the recent market and how these will
be beneficial for the company in the near future by discussing the relevant theories. The
capital budgeting decisions are most important a well as the complex part of the financial
analysis which describe the possible risks related to the project and focuses on the valuations
of the investments which create the shareholders by investing in the long term projects of the
company. Apart from this the equipment such as the fixed and intangible asset valuations are
also been calculated. Hence it is an important part of the investment opportunities
(Chittenden and Derregia 2015). However the capital budgeting techniques and tools lead to
the justification of the specified areas. However there are some methods of calculating the
capital budgeting process like internal rate of return method (IRR), accounting rate of return
(ARR) payback period method, BCR method and lastly the profitability index method. The
payback model describes the length of the time required to recover exactly the invested cash
outlay. On the other hand the AR is calculated as the investment ratios of the average tax
payment into the average book value of the project. Hence the payback period does not
provide the systematic risk in the monitory value than the total accounting rate of return value
of the project. Apart from this there is net present value model which measures the difference
between present values of money out (Daunfeldt, and Hartwig 2014). If the NPV is positive
then the capital investment is high and vice versa. Alternatively the internal rate of return
deals with the rate of capitalization technique. Similarly PENTAG Company can also apply
the above business techniques within the organization in order to see the business viability
and the current market position over the products and services. Hence it is seen that the
method is appropriate for the company (de Andrés ,de Fuente and San Martín 2015).

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Recommendations and justification:
All the policies and processes used by the company in order to see that whether the
company have implied a good project which will shape up their business viability as well as
can also improve the business profitability of the company. However the techniques used by
the company in relation to the current business viability of the company can have important
decisions of the company. Hence the company could try to improve the capital budgeting
techniques in the future by following the below policies –
Keeping the technique simple:
The company can make rigid forecasts and prepare some useful budgets. However the
changes in the progress will let to check the business progress. However continuing to base
the decisions and on the guessing which can lessen the faults and costly decisions. In addition
holding employees matric to generate information could allow the company to increase the
accuracy and bring better outcomes. Hence the company could also use the similar technique
in order to improve the
Implementation of rolling forecast:
This is a technique which enables the organizations to continuously plan over the set
time horizon. If the company produces the plan for the calendar year 2018 in the twelve
month quarter. However the company could try to implement the traditional approach if a
static annul forecast which only credits new forecast in the New Year. Hence the company
could implement this technique in the future in order to improve in the capital budgeting
(Rossi, 2014).
Apart from this the real option technique is also another process which can be
implemented within the organization in order to improve the capital budgeting technique
within the organization (Brunzell , Liljeblom and Vaihekoski 2013).

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However all these methods are fully justified in the sense that the capital budgeting
have different techniques to improvise in the future and these will be easy to improvise in the
organization (Burns and Walker 2015).
Detailed comparison and further recommendation:
Qualitative and quantitative data analysis are important in order to improve the work
ethics of the company. Therefore the main comparisons between the quantitative and
qualitative data are as follows-
 Quantitative analysis  Qualitative analysis
 It is a subjective analysis which is
more concerned with the non-
statistical data which cannot be
computed.
 It is an objective analysis which can
quantify data (Sari and Kahraman
2015).
 Typical data including the colour,
gender, nationality religion and
many more.
 The typical data analysis includes
measurable quantities such as length,
size, weight, mass and others.
 The analysis is used to understand on
why the certain phenomena occurs.
 The analysis is concerned with the
different and number of phenomena
occurring.
 Here the ample is small and are non-
representative in entre population.
 The sample taken by the company I
large and be generated to cover the
entire population.

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 These are interpretable and
understand in the social benefits.
 The hypothesis gives proper
predictions.
 The research analysis and
methodology is mandatory in this
issue. However the PENTAG
Company have invested more money
in doing the research analysis and
implementing net techniques.
 The research methodology is often
conclusive.
Hence it can be further recommended that the company could try to implement some
new business techniques and improve the product quality. Apart from this the company could
also look to increase efficiency by improving the labour performance quality and maintaining
the standards. However they could keep the environment safe by generating new
environmental friendly policies and process which could increase the company productivity
and efficiency at the same time. Hence in this way the company could look to improve the
profitability in the future (Andor, Mohanty and Toth, 2015).
Conclusion:
Hence it can be concluded from the above study that the PENTAG Company could
look to implement the capital budgeting decision by implementing the same within the
organization. The various capital budgeting techniques like NPV, ARR, IRR, and BCR and
profitability index policy could well implement themselves in the organization and analyse
whether it could be implemented within the organization in the correct way. Hence it is seen
that the company has chosen a correct project to implement.

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References :
Andor, G., Mohanty, S.K. and Toth, T., 2015. Capital budgeting practices: A survey of
Central and Eastern European firms. Emerging Markets Review, 23, pp.148-172.
Brunzell, T., Liljeblom, E. and Vaihekoski, M., 2013. Determinants of capital budgeting
methods and hurdle rates in Nordic firms. Accounting & Finance, 53(1), pp.85-110.
Burns, R. and Walker, J., 2015. Capital budgeting surveys: the future is now.
Chittenden, F. and Derregia, M., 2015. Uncertainty, irreversibility and the use of ‘rules of
thumb’in capital budgeting. The British Accounting Review, 47(3), pp.225-236.
Daunfeldt, S.O. and Hartwig, F., 2014. What determines the use of capital budgeting
methods?: Evidence from Swedish listed companies. Journal of Finance and
Economics, 2(4), pp.101-112.
de Andrés, P., de Fuente, G. and San Martín, P., 2015. Capital budgeting practices in
Spain. BRQ Business Research Quarterly, 18(1), pp.37-56.
Hornstein, A.S., 2013. Corporate capital budgeting and CEO turnover. Journal of corporate
finance, 20, pp.41-58.
Malenko, A., 2018. Optimal dynamic capital budgeting. Available at SSRN 1710884.
Rossi, M., 2014. Capital budgeting in Europe: confronting theory with practice. International
Journal of Managerial and Financial Accounting, 6(4), pp.341-356.
Rossi, M., 2015. The use of capital budgeting techniques: an outlook from
Italy. International Journal of Management Practice, 8(1), pp.43-56.
Sari, I.U. and Kahraman, C., 2015. Interval type-2 fuzzy capital budgeting. International
Journal of Fuzzy Systems, 17(4), pp.635-646.