Initial Critical Exchange Forum Comment

Student initial critical exchange forum comments are due weekly by Wednesday. Initial response comments should approximate 300-350 words, and contain at least two outside scholarly reference sources.

Note that a total of 3 logins and 3 exchange forum posts are required on 3 separate days.

Students are required to research their selected forum topic, and then compile a 300-350-word response to the forum topic no later than Day 3 (Wednesday) of the week. A choice of critical exchange forum topics is assigned weekly. Students are expected to select an aspect of interest from the list of topics offered; students may also choose to combine topics. APA format is required. Submit your forum topic using the critical exchange forum assignment link.

Critical exchange forum topic response contributions will be critically graded on the thought quality of the response, work effort, research, and analysis.

Select one of the following forum topics to research and write about.

  Forum Topics(Select one)

Subjects: Capital Budgeting & Valuation w/Leverage; Options

Capital budgeting

The weighted average cot of capital method

Net present value (NPV)

Option basics

• Factors affecting options prices
• Critical Exchange Forum Responses
• In addition to students)nitial critical exchange forum comments, students are also expected to actively participate in the in the forum discussion. Active participation requires a minimum of two forum logins on two separate days. Thus, a minimum of three logins on three separate days is required to earn full credit. Forum response participation posts require a minimum of 150-250 words to earn full participation points.
• Guidelines for student forum discussion/participation:
• Select a fellow student’s response and compare and contrast your thoughts with theirs;

Advance the conversation; provide a real-world application and experiential examples;

Conceptually discuss your key [most significant] learning insight or take-away from the selected forum topic comments.

Responses should be a minimum of 150-250 words, supported by at least one reference outside of the textbook, either supporting or refuting the position of the author of the forum topic response or peer response.

Student 1

• Joash Osoro
• YesterdayMar 28 at 4:42pm
• Manage Discussion Entry
• Capital budgeting is utilized to estimate the financial viability of capital investment over the life of the investment asset (Hofstrand, 2013). This method primarily measures the potential risk and expected return of capital investments with useful lives of multiple years, such as new production facilities, machinery, and equipment (Hofstrand, 2013). Compared to other types of investment analysis, capital budgeting solely focuses on cash flow rather than profits (Hofstrand, 2013). Therefore, it focuses on identifying a company’s cash inflows and outflows rather than revenues and expenses, which flow through the investment (Hofstrand, 2013). While expenses and revenues are excluded, non-expense items such as debt principal payments are included because they are considered cash flow transactions affecting a business’s cash outflow (Hofstrand, 2013). 

Even though capital assets account for a small portion of a company’s total investment, these investments are generally long-term; therefore, strategically planned capital budgeting is essential and should be incorporated into the company’s financial process, which will allow companies to determine and prioritize projects and other investments that could be most benefit the company financially in the long term (Norwich University, 2017). While capital budgeting is used to create a budget for the project costs, an estimated timeline for its return and deciding the value of the project, it is also valuable for measuring progress and ensuring the investment is still adding the expected value (Indeed Editorial, 2022). 

To determine if a project, program, or piece of equipment is worth the investment, companies use the following five methods: 

Internal rate of return: This method helps the companies determine if a particular investment is worth investing in by estimating and assessing the interest the project will yield throughout the investment (Rajak, 2023).

Net present value:  is used by companies to identify discount rates based on the cost of financing the projects and calculate the rate of return expected for a similar investment (Norwich University, 2017).  

Profitability index: Measures the ratio of the present value of the cash inflows to the initial investment (Rajak, 2023). A greater than one profitability index is a good sign that the project is profitable; the company should consider investing (Rajak, 2023).

Accounting for the rate of return: Assist a company with measuring the projected average annual income or profit generated by the investment as a percentage of the initial investment (Rajak, 2023).  

Payback period: Is used by companies to determine the length of time the company requires to recover its initial investment; however, this method does not account for time value; therefore, it is considered less accurate (Rajak, 2023). 

References: 

Norwich University. (2017, August 1). 5 methods for Capital Budgeting. Norwich University Online. Retrieved March 27, 2023, from https://online.norwich.edu/academic-programs/resources/5-methods-capital-budgetingLinks to an external site.

Hofstrand, D. (2013, August). Ag decision maker – Iowa State University. Iowa State University Extension and Outreach. Retrieved March 27, 2023, from https://www.extension.iastate.edu/agdm/Links to an external site.

Indeed Editorial. (2022, August 8). Capital budgeting: Definition, importance and different methods. Capital Budgeting: Definition, Importance and Different Methods. Retrieved March 27, 2023, from https://www.indeed.com/career-advice/career-development/capital-budgetingLinks to an external site.

Rajak, H. (2023, February 19). Understanding appraising methods for capital budgeting in financial management. hmhub. Retrieved March 27, 2023, from https://hmhub.in/capital-budgeting-appraising-meth…

Student 2

Tricia Harvey

MondayMar 27 at 11:35am

Manage Discussion Entry

Hello Class,

Topic: Net Present Value (NPV)

Net Present Value (NPV) is a very popular and common calculation used extensively across finance and accounting. NPV is the value of all future cash flows (positive or negative) over the entire life of an investment discounted to the present and is a form of intrinsic valuation (CFI Team, 2023). This calculation can aid in determining value of a business, investment, capital project, new venture, or anything involving cash flow.

The formula for NPV is (Girardin, 2023):

In this formula: 

Cash Flow is the sum of money spent and money earned on the investment or project for a given period of time.

n is the number of periods of time. 

r is the discount rate.

There are three potential outcomes of net present value, which include a positive, negative or zero outcome. A positive result means the project or investment may be profitable and worth pursuing; a negative result means the project or investment is unlikely to be profitable and should probably not be pursued; and a zero result of the project or investment is neither profitable nor costly and may still be considered if significant intangible benefits are present (Girardin, 2023).

NPV Example (Girardin, 2023):

Rate 7%

Initial Investment $15M

Cash Flow earà1 & 2 = $3M; Yearà3, 4 & 5 = $5M

Cash Flow Sum $16,884,950

NPV $16,884,950 – $15,000,000 = $1,884,950

It is important to consider the initial investment when analyzing NPV. Although one project may have a higher NPV than another, the initial investment can vary greatly and could impact the final decision. In addition, NPV uses estimates as a means to its calculation. If these estimates change over time, it is crucial that the new data be take into consideration. Long-term investments could return an inaccurate estimate through the NPV calculation, so re-evaluation over its course is vital. NPV as a metric confers a few unique advantages, but it also has some disadvantages that render it irrelevant for certain investment decisions (Swenson, 2023).

Tricia Harvey 

References

CFI Team. (2023). Net present value (NPV). CFI. https://corporatefinanceinstitute.com/resources/va…

Girardin, M. (2023). How to calculate net present value (NPV). Forage. https://www.theforage.com/blog/skills/npv

Swenson, S. (2023). Net present value defined and discussed. The Motley Fool. https://www.fool.com/investing/how-to-invest/stock…