Capital Budgetinggeting1.0 INTRODUCTION
Capital budgeting plays an important role in a firm’s financial management, the selection of a project is of great importance because it required a very large capital expenditure which will have a significant impact on the financial performance of the firm. Therefore a mistake in capital budgeting process by a firm will cost them a long period of time.
Capital budgeting can be defined or seen as a designed process which involves management of available resources to select long time investments that will generate high return on the investment of those resources, Brealey, R. A et al (2006). Companies are into businesses with the main aim of making profit, therefore, it is vital for companies to know how to evaluate their expenditure. It is very important for a company to know the present value of the future investment and the time period it will take to mature before investing in a project. Examples of investment decision are purchase of new equipment or acquisition of industrial building.
2.0 ANALYSIS AND DECISION MAKING OF COVERED INTEREST ABITRAGE
This can be described as an investment strategy which involves the buying of financial instrument dominated in a foreign currency by an investor and also the selling of a forward contract in his base currency in order to hedges his foreign exchange risk, Bodie, Z. and Kane, A. (2007). Based on the covered interest arbitrage i agree that there will be no difference if HW Technologies raise the capital needed for the joint venture in USA or Malaysia because the risk of interest and the fluctuation of currency are protected. In other words whether the money will be raised in USA or Malaysia the covered interest arbitrage will provide a hedge.
3.0 PREPARATION OF CASH FLOW, TABULATION SHOWING INFLATION OF MALAYSIA ANS USA
| CASH FLOW BEFORE TAX | |
YEAR | CASH FLOW | TOTAL PRICE | CASH FLOW |
1 | 50000 | 25 | 1250000 |
2 | 51500 | 25 |...