Assessment 2 Evaluation of Capital Projects

Full Answer Section Analysis The following table summarizes the results of the capital budgeting analysis: Project NPV IRR Payback Period A $10 million 20% 5 years B $5 million 15% 4 years C $3 million 10% 3 years Recommendations Based on the capital budgeting analysis, I recommend Project A. Project A has the highest NPV and IRR, which means that it is expected to generate the most value for the company. Additionally, Project A has a relatively short payback period, which means that the company will be able to recoup its investment relatively quickly. Project B is also a viable option, but it has a lower NPV and IRR than Project A. Additionally, Project B has a slightly longer payback period. Project C has the lowest NPV and IRR, and it has the longest payback period. Therefore, I do not recommend Project C. Conclusion Project A is the best option for the company because it has the highest NPV, IRR, and the shortest payback period. Project A is expected to generate the most value for the company and will allow the company to recoup its investment relatively quickly. Additional Considerations In addition to the capital budgeting tools discussed above, there are a number of other factors that the company should consider when making an investment decision. These factors include: The company's strategic goals The company's risk tolerance The competitive landscape The macroeconomic environment The company should weigh all of these factors carefully before making a final investment decision.

Sample Answer

Report on the Capital Budgeting Analysis of Three Proposed Investment Projects

Introduction

This report analyzes the capital budgeting of three proposed investment projects:

• Project A: Construction of a new factory
• Project B: Launch of a new product line
• Project C: Expansion of the sales team

The analysis is based on the following capital budgeting tools:

• Net Present Value (NPV)
• Internal Rate of Return (IRR)
• Payback Period