Provide a memorandum detailing with the flow of information involved in a generic capital budgeting process. This will be used as a basis for developing a standard BPP approach.The memorandum should discuss the organizational cost of capital, how to integrate new project investment with an existing investment portfolio, and how to account for organizational tolerance for risk. Show how balance sheets, income statements, and cash flow statements are used as inputs to diagnose organizational, project health, and shareholder value. Include generic approaches to evaluation, and briefly discuss the specific approach options in the framework.
The capital budgeting process of an organization can make or break its financial sustainability. What this means is that first and foremost this process should, at the end of the day, arrive at decisions that add value to the organization when such decisions are implemented.
In capital budgeting decision making process and analysis, the cost of capital used can significantly impact the value of an investment option. Hence, it is important that the organization takes an accurate estimate of its weighted cost of capital or the required return it will demand from specific capital projects. To put into perspective the significant impact of the level of the cost of capital used in evaluating projects, the table of present values if presented below.
For a hypothetical project that provides a cash flow of $1,000 in ...
The flow of information in a Generic Capital Budgeting Processes are examined.