250 words agree or disagree to each question
Q1
Business expansion is dependant upon growth. By planning growth-centered projects, a business sees the opportunity of where it can be. Capital budget planning analysis is used to determine whether an organizations long-term investment projects are worth pursuing. All growth projects inherently have risks involved. Thankfully, some tools can help predict those risks and evaluate whether a project’s benefits outweigh the risks. “There are numerous kinds of risks to be taken into account when considering capital budgeting…” such as market, corporate, and project-specific risk. There are many ways to identify and quantify these risks to help investors feel more comfortable with the risk involved. Project risks directly affect capital budgeting analysis because the risks involved can negatively affect the cash flows. If the market does not follow the trends predicted, it could affect cash flow negatively and derail plans.
DCF should be used in evaluating capital budgeting projects because analysts will look at the initial cash outflow needed to fund a project, the mix of cash inflows in the form of revenue, and other future outflows in maintenance and other costs. If the DCF is above current costs it could potentially result in positive returns.
Q2.
Capital budgeting analysis is a very effective method for determining project risks. Every project has a certain level of risk so it is a good idea to perform capital budget analysis to determine how much of an effect the project will have on the business whether it be positive or negative. If an entrepreneur wants to start a business or if a company has a new business model it is very important to outline the risk associated with the idea or model. Capital budgeting lists the equipment that will be purchased as well as any assets that will need to be purchased for the project. There are many different type of risk to consider such as corporate risk, marketing risk, international risk, and project specific risk. All of these can be evaluated through various types of analysis. Discounted cash flows tie in to capital budget. It is a type of analysis method that is used by a myriad of businesses. Net Present Value and Internal Rate of Return are both important when in deciding certain factors. These help provide insight and formulates ideas that can be used by businesses to make huge decisions. All of this data is useful for any business whether it be big or small. Discounted cash flows is especially great and is an effortless process to understand and learn and can be easily applied to most businesses.
