BUS650 Managerial Finance Wk3 Journal

May 22nd, 2016
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BUS650 Journal

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RUNNING HEAD: CAPITAL BUDGETINGCapital Budgeting - JournalBUS650InstructorMay 22, 20161Capital Budgeting2Capital Budgeting - JournalIn business, capital budgeting is well-defined as the practice in which a businessregulates whether or not ventures such as introducing new products to the marketing is worthpursuing and investing in for the organization. As noted in the video, capital budgeting is afactor when the present value analysis is determining the future value of cash that has beendiscounted to reflect the current cash value rate. The present value of money is always lessthan the future value of cash because of the prospective rate of interest that the money willearn, effectively known in business as time value of money. For instance, as per the examplein the video, paying for a car in cash at the present value rate versus paying for a car over a 5year period for \$15,000 is calculated as shown below:\$15,000 (1/1.05) ^5 = \$15,000 x .784 = \$11,760.00 or \$15,000 (1.05) ^5 = \$15,000 /1.275 = \$11,764.71FV = \$15,000; N = 5; I = 5: PV \$11,764.71N=5I/Y = 5.00%PV = 11,764.7115,000 + 5% over 5 years will cost = \$19,144.22 = \$4,144.22FV = \$19,144.22Th

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