first student 100 words/ 

Jacqueline

Capital budgeting,  is when a business can determine if a specific project is valuable to take on over the long term. Making long-term choices on a company's operating capital investments is part of capital budgeting. Planning the final yields (returns) on investments in new technology, new store, real estate, and machinery are all instances of capital budgeting.

     Investment in plant and machinery is one decision made with regard to the capital budget, investing in new factories and  buying a brand-new structure.People can prioritize their investments in their own businesses, investments, or themselves using the cost of capital. They can also use the cost of capital to prioritize their repayment of personal loans, such as mortgages, student loans, credit card debt, and vehicle loans. If a person has no debt, they can use the cost of capital to evaluate the interest rates on savings accounts and certificates of deposit. Individual capital costs are supposed to be as low risk as possible. Additionally, the minimal risk solutions should have a bigger projected payback than your particular cost of capital.

      The yields required by a company in order to approve a capital project are indicated by cost of capital.After figuring out the cost of capital, managers then examine the projected earnings. If they are higher than the cost of capital, they accept the project; if the projected profits are lower than the cost of financing it, they reject it. For instance, a business will need to determine the cost of capital before deciding whether to open a new store using capital budgeting. This is due to the fact that they will need to assess the long-term cash flows associated with the new shop. The analysis will provide management with information on how much money will be needed to finance the new store and any potential returns.There is a chance the project will be rejected if the cash outflows are greater than the cash inflows, and simultaneously.

     Businesses should prioritize their capital expenditures in proportion to potential prospects for predicted or projected capital expenditures, and then they should decide which of the identified options offer excellent investment returns. This should be followed by a thorough explanation of the whole cost that makes up their investment, including details regarding the source of finance. The business must next evaluate all the data using capital budgeting techniques, such as payback, to determine which capital investments would yield the highest returns and quickest payback under each specific circumstance.

Second student Stacy 

Capital budgeting is a complicated process that is essential to worthwhile investment decisions by a company. It is an important process that must be conducted to help investors determine the value of a potential investment project. It also creates accountability and measurability that can be used to determine the long-term economic and financial profitability of any investment project. (Pinkasovitch, 2022). 

Example of a Capital budgeting decision at Chic Fil A

As we Know Chic Fil A is one of the best fast-food chains in the fast-food industry. Chic Fil A has approximately 20 outlets in the state of Virginia. The franchise is considering and planning to open 10 new outlets within the state. The decision to open new fast-food outlets is an illustration of a capital budgeting decision because management must evaluate the money flows accompanying with the new outlets over the long term. Expanding the franchise is not easy decision and it will require capital to do so. Therefore, the manager’s role would be to evaluate the expansion proposal as a long-term investment to determine the amount of money that would be expended on the investment and how much money would be received as an outcome of the investment. 

Currently, I am paying rent that goes towards the mortgage for my landlord’s home. I am using cost of capital in my personal life to purchase a home in the local area. Which means I must examine the cost involved in purchasing a new home such as the closing cost, interest rate, property taxes, and its value after 10 years in the event I decide to sell the house or turn it into a rental property. 

Once an organization computes its cost of capital the manager identifies opportunities to take on projects by means of the time value of money concepts such as the internal rate of return, net present value, profitability index and payback period. Primarily, the initial expenditure, future cash flows, and the salvage value are defined for each project. Followed by the calculations of the discounted values to determine the net present value of the project. The discounting is completed by weighted average cost of capital. If a positive net present value is concluded, then management can decide whether the project is achievable or not. When there is numerous positive net present value then the precedence is given to the project that contains the maximum net present value. If there are identical net present value projects, then the payback period comes into play. The payback period can be characterized as the time required to recoup the cost of the investment or the span of time an investor needs to reach a breakeven point (UMGC, 2014). Projects with lesser payback periods are better and given precedence.

References

Pinkasovitch, A. (2022, January 27). Investopedia: An Introduction to Capital Budgeting. Retrieved from https://www.investopedia.com/articles/financial-theory/11/corporate-project-valuation-methods.asp#:~:text=Capital%20budgeting%20is%20important%20because,by%20its%20owners%20or%20shareholders.

UMGC. (2014). Boundless: Capital Budgeting (Chapter 11). Retrieved from https://leocontent.umgc.edu/content/dam/equella-content/finc331/Chapter11CapitalBudgeting.pdf

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