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Learning Team A Capital Budget Recommendation

Gerald Shaw, Kenneth Barre, Rosa Daws

ACC/543

Linda Miller

February 23, 2015

Learning Team Weekly Reflection Week 2

For this week’s assignment Learning Team A will be providing insight on the three capital budgeting techniques in relation to the Guillermo Furniture Scenario. Learning Team A after careful evaluation of the data sheets provided for Guillermo Furniture will identify the best uses for the three techniques and lastly provide a capital budget recommendation that best suites Guillermo Furniture.
Three Capital Budget Evaluation Techniques-Gerald For Guillermo Furniture, Learning Team A will advise on three different capital budget techniques available to aid in the decision-making process. Those three methods are NPV (Net Present Value), IRR (Internal Rate of Return), and Payback method.
NPV (Net Present Value) NPV or net present value helps an organization figure out whether it’s better to invest in a project based on the net amount of discounted cash flows for the project (Eldenburg, PhD & Wolcott PhD, CPA, CMA, 2011). NPV is best served positive which will indicate that the project will be a benefit by increasing the value of the organization. NPV is calculated through expected cash flows that include an initial investment, incremental operating cash flows, and terminal cash flows (Eldenburg, PhD & Wolcott PhD, CPA, CMA, 2011). That calculation is as follows: [pic]

Through this calculation, the firm is computing the time period (t), life of the project (n), and the discount rate (r) to reach the NPV. The results as stated earlier if shown to be positive will prove that the project is valuable to the organization. The evaluation for NPV will show to accept if the NPV is greater than zero (Eldenburg, PhD &

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