Description
Discussion 1
undefinedPrior to beginning work on this discussion, read Chapter 12: The Capital Budgeting Decision in your textbook.
undefinedCapital budgeting plays an important role in planning for capital expenditures. Regardless of one’s role or department in an organization, it is important to be familiar with the capital budgeting process in order to determine the financial viability of any projects or proposals.
undefinedYour textbook presents three primary methods financial managers use to rank capital investment proposals. Summarize each method, and assess its advantages and disadvantages.
undefinedDiscussion 2
undefinedPrior to beginning work on this discussion, read Chapter 13: Risk and Capital Budgeting in your textbook.
undefinedAcquisitions are often risky investments for a company. On December 1, 2017, Deere & Company decided to acquire the stock and certain assets of almost all of Wirtgen Group Holding’s operations. For this discussion, address the following:
undefined- Describe the concept of risk as it pertains to investment decisions.
- Explain how companies measure the level of risk related to a given investment decision.
- Discuss risk factors companies should consider with acquisitions.
- Explain which of these risk factors you see at play in the Deere & Company acquisition.
Guided Response: Review the posts from your classmates and respond to at least two. Compare and contrast the points you and your classmates made regarding risk factors in acquisitions. Each response should have a minimum of 400 words for each discussion.
Explanation & Answer
View attached explanation and answer. Let me know if you have any questions.
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Discussion 1 and 2
Student’s Name
Instructor’s Name
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Discussion 1: Capital Budgeting Decision
There are three main methods used in the general assessment of capital expenditure
and the general ranking of capital investment proposals. The three methods include; the
internal rate of return, the net present value and the payback period. These three methods can
be applied separately in different projects based on convenience or collectively to help make
a sound decision (Bierman, & Smidt, 2012).
The internal rate of return: This method involves using a discounting rate on the
present value where the future cash flow values of the capital budget or the investment
proposal are zero. This method makes it possible to compare the various projects based on the
value of the future cash flows, and the managers usually choose the most effective rate of
return. In this case, the financial managers usually look into the project with the highest
internal rate of return.
The method has several advantages and disadvantages, which also affect the decision
on whether or not to use it. The first advantage is that the method uses the time value of
money concept, making it possible to have a clear picture of the organization's future cash
flows concerning the investments. The method is also straightforward to use as it provides a
clear ground to compare the various projects that need assessment to make the investment
decision. The disadvantages of this method include; the method does not consider the size of
the project; this may prove challenging when the projects b...
