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Budgeting

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Budgeting Model Case Paper

February 24, 2014

When incorporating whether to purchase Corporation A or Corporation B, it was easy to choose Corporation B. The reason behind this decision is based on a multitude of things. The income statements are close to one another, and even though the statement is slightly greater in Corporation A than B, that is not the main reason for the decision. The income statement is very similar to a company’s cash flow. With the income statement being marginally greater with company A the cash flow of company B is much greater. Unlike the difference of just under $200 with the net income, the cash flow is greater by more than $3,500 between the two corporations. Cash flow can be defined as “A revenue or expense stream that changes a cash account over a given period ("Excess Cash Flow", 2014).” This is significant when deciding on what business to take in. Having more money on hand will allow for that company to put that money back into the business. This makes the company expand, and become more profitable. Having this extra cash can also mean that everyone will be able to paid in a timely manner, and the company being less likely to go bankrupt. That $3,500 difference can add up over time. When it comes to net income, the figures say that the company A can make more money than company B, but the cash flow is where we can see the biggest gain.
The next item is the NPV, net profit revenue, this is a much bigger decision maker than net income or cash flow. Net profit revenue tells us how the decision-making process works. If the company is a positive buy then the company will flourish, but if the company has a negative buy, then of course the company will fail. Both corporations have a $250,000 starting budget. After the careful calculations, it is obvious that both companies will be profitable. Corporation A

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