Capital Budgeting Simulation Summary of Financi

The most respected of the project assessment indicators, net present value is the amount that you would need to pay now to obtain the future stream of cash flows that the project would produce. It is particularly useful when dealing with a project that will require investment over a period of time, or will take a while to become profitable. It also shows the total dollar value of the project, rather than a percentage. This makes it easier to maximize the total dollar result of an investment portfolio rather than maximizing one indicator.

Corporation B has a much higher net present value, despite the fact that it was calculated using a higher discount rate. The main reason for this is the slower rate of increase of costs relative to the increase in revenues than is present in Corporation A. Corporation B's higher depreciation expense also results in more tax benefits, further increasing its net present value.

. . .
that the company will need to support in its early years, draining resources that might cause it to be cut in a business downturn. The payback period for Corporation B is slightly shorter. However, a few months of difference would not generally be considered significant. Discounted Payback Period This is a superior measure to the standard payback period calculation because it takes into account the time value of money. It gives the user an idea of how long they will need to wait to be able to reinvest their money. Corporation A has a much longer discounted payback period than Corporation B. This indicates a higher level of risk for the capital contributed by the investor. Profitability Index The profitability index is an excellent answer to the difficulty of net present value analysis on projects that have different lengths. It combines the proper treatment of cash flows that net present value analysis provides with the comparability of a ratio. Any result over 1.0 indicates a project that will earn a profit. As expected, Corporation B has a much higher profitability index than Corporation A. The similar duration of these two projects greatly simplifies their comparison. Often, however, projects have
. . .

Some common words found in the essay are:
Variables Memo, Profitability Index, Payback Period, Net Value, Using IRR, Rate Return, Modified IRR, Corporation Corporation, net value, payback period, cash flows, tax rate, Corporation B's, IRR Corporation, rate return, profitability index, internal rate return, corporation corporation, internal rate, discount rate, tax benefits, marginal tax rate, net value analysis, discounted payback period, project future value,
Approximate Word count = 1501
Approximate Pages = 6 (250 words per page)