Capital Budgeting Essay - 1391 Words

Capital Budgeting Essay (Derived from Chapter 17: Long-Term Investment Analysis) Title: The Lorie-Savage Problem BUS 505 – Multinational Economics of Technology Table of Contents 1.0 Introduction – Lorie-Savage Problem 3 1.1 Thesis Statement 3 2.0 Supporting Research 4 3.0 Conclusions and Recommendations 6 References 7 1.0 Introduction – Lorie-Savage Problem The Lorie-Savage problem is a problem introduced in 1955 that addresses the issue in how to allocate capital (or resources) among competing investment opportunities with constraints on the available resources. (Lorie amp; Savage, 1955, p. 229) In defining this problem, Lorie-Savage structures it by outlining three separate scenarios: 1) Given the cost of†¦show more content†¦(Lorie amp; Savage, 1955, p. 234) Turns out this is an Integer Programming optimization problem as it has identified constraints with the end output being to either accept an investment (using the integer 1), or decline (using the integer 0). Since the Lagrange Multipliers are real values, this is more specifically classified as a Mixed Integer Programming problem. (Trick, 1998) Their research proved to be revolutionary as this strayed from the traditional accepted method in using IRR, and this research has evolved since. One example of this is demonstrated where Seymour Kaplan introduced the concept of applying the Generalized Lagrange Multiplier (G.L.M.) method with Integer Programming, using the Lorie-Savage problem as a basis for comparison, that found favorable results in the effectiveness of G.L.M. in producing optimal solutions using NPV to make investment decisions. (Kaplan, 1966, p. 1136) Building on this research was th e introduction of using genetic algorithms (GA) to solve capital budgeting problems in allowing financial analysts to find optimal investment combinations for various situations, such as the multiple tax-structures a company may encounter. (Berry amp; Manongga, 2006, p. 96) Expanding on the GA implementation was research conducted that incorporated fuzzy set theory on problems when investment parameters contained scant or vague information and therefore had great uncertainty. Xiaoxia Huang created a new meanShow MoreRelatedCapital Budgeting Scenarios Essay example886 Words   |  4 PagesCapital Budgeting Scenarios Shannan Coleman FIN/486 September 23, 2012 Sal Sadiq Capital Budgeting Scenarios Capital Budgeting: Proposal A – New Factory Proposal A is to build a new factory to decide if this would be a feasible move for the company they need to perform a net present value analysis. To do this they will only need to look at the incremental cash flows, which are as follows: 1. Initial investment of $10 million that will be the cost to build the new factory. 2. SalesRead MoreCapital Budgeting in Galaxy Science Centre Essay1403 Words   |  6 PagesCapital Budgeting in Galaxy Science Centre Capital Budgeting encourages managers to accurately manage and control their capital expenditure. By providing powerful reporting and analysis, managers can take control of their budgets. The purpose of this paper is to investigate capital budgeting decision under Galaxy Science Centre (GSC), which is non-profit organization. The need for such an analysis emerges from the case that only provides general information concerning the impact of capital budgetingRead MoreEssay Capital Budgeting935 Words   |  4 PagesCapital Budgeting The city engineers presented city council members with two projects that require large capital outlays. However, the economic downturn makes implementation of both projects impossible with current budget restraints. Therefore, the city council decided to conduct a cost benefit analysis to determine the most cost effective project. While neither project met all the requirements, data analysis determined that Option B was the best choice. However, city engineers pushed backRead MoreCapital Budgeting Essay2618 Words   |  11 PagesCapital Budgeting Introduction Capital budgeting is the process of evaluating and selecting long-term investments that are consistent with the firms goal of maximizing owner wealth. A firm using capital budgeting, their goal is to see if there fixed income will cover itself for profit. Fixed incomes are things such as land, plant and equipment. When a firm using a machine to produce its good or service. They most of the time what the machine to produce the amount that they paid for the machineRead MoreCapital Budgeting Essay697 Words   |  3 PagesStrident Marks can utilize the capital budgeting to evaluate their proposed long-term investments. Once we have identified a list of potential investment projects, the next step in the process will be to estimate the expected cash flows and risk of each project. Based on these estimates, we can evaluate each project and decide which set of projects are the best for Strident Marks to undertake. The primary decision methods used to evaluate the projects will be payback, net present value, and internalRead MoreCapital Budgeting Case Essay1167 Words   |  5 Pages1 Capital Budgeting Problem MBA612, Dr. Schieuer By: Dean Anderson, Terry Sutton, Sawan Tamang, Karuna Mishra, 2 Capital Budgeting Process: Capital budgeting (or investment appraisal) is the planning process used to determine whether an organizations long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures (SullivanRead MoreEssay on Capital Budgeting Summary2017 Words   |  9 PagesCapital budgeting is the process of evaluating a company’s potential investments and deciding which ones to accept. A company’s market value added (MVA) is the sum of all its projects’ net present values (NPVs). Basically, one can calculate the free cash flows (FCFs) for a project in much the same way as for a firm. When a project’s free cash flows are discounted at the appropriate risk-adjusted rate, the result is the project’s value. One difference between valuing a firm and a project is theRead MoreThe Cross Boarder Mov ements Of Good, Services And Resources1480 Words   |  6 Pages Question 1. In a short essay discuss why government have been liberalizing cross-boarder movements of good, services and resources. As we learned in the course international business is growing more and more for every year. Today 25% of all business is international business. This has almost forced countries and their governments to change the laws and regulations around cross boarder movement of goods, services and resources. As access is easier now for everyday costumers to international goodRead MoreCash Flow Estimation And Capital Budgeting933 Words   |  4 Pages Trident University Beverley Lionel Module 3 Case: Cash Flow Estimation and Capital Budgeting FIN 501 Strategic Corporate Finance Dr. Edward Kaplan May 21, 2017 ABC Golf Equipment Corporation Memo to the CEO, Mr. Hillbrandt To: The CEO, Mr. Hillbrandt From: Chief Financial Officer Date: May 21, 2017 Subject: Estimating Project Cash Flows Introduction If the manufacturer plans on using debt to finance the project, should the estimated project cash flows be changed to reflect theseRead MoreEssay about Capital Budgeting483 Words   |  2 Pagesoperating budget, and (d) the capital budgeting (Buchbinder Shanks,2007,p.226). Capital budgeting is the most expensive in contrast to the other budgets because the operating costs goes beyond the traditional calendar or annual budget. The capital budget is the most challenging for CEO’s to use as a control mechanisms. The challenge is to due to scare resources and the difficulty in forecasting funding requirements. According to Buchbinder and Shanks (2007), Capital Budgeting may be defined as the