Hay Taxi should replace the new vehicles after five years. This decision comes about after a capital budgeting analysis that illustrates the different possible scenarios for replacing the vehicles. A net present value calculation was done for each scenario to determine which scenario delivered the highest total net present value over the next six years for the Hay Taxi company. There is little difference between replacing the vehicles after year six, but year five yields a slightly better net present value. It is not recommended that the vehicles are replaced any earlier than this. The heart of the methodology is the net present value analysis. The net present value calculation takes into account all of the incremental cash flows to this decision. The cash flows in question are the cost of the vehicles, their salvage value, the cost of replacing the batteries should the cars be...
The revenue is incremental because our current fleet must be replaced -- we could also choose to shut down the company.
Approximately 19% of the short-term liabilities in the form of notes payable and other short-term debt. The long-term liabilities consist of long-term debt and other miscellaneous liabilities. The debt portion of this represents approximately 39% of the total long-term liabilities. Johnson & Johnson has issued notes onto the market that mature in 2017, comprising the bulk of the long-term debt. The calculate the market value capital structure of JNJ, we need
Capital Budgeting for Guillermo Furniture Guillermo Navallez, owner of the relatively small yet highly successful furniture manufacturer Guillermo Furniture, is faced with a tough decision. Due to changes in the industry an in his operating atmosphere, Guillermo is unable to continue competitively running his company as he has for the past decades, with a crew of skilled laborers building furniture and with distribution handled essentially by the company itself. He must
Capital Budgeting Sunk costs are costs that have already been incurred. So for example if a company spent money on a marketing assessment for a new product, that would not be included in the decision to bring that product to market because that money was already spent. Sunk costs are not included in a capital budgeting analysis. Opportunity costs are not included in a capital budgeting analysis. An opportunity cost is something
Capital Project According to the AMA, capital budgeting is "the decision-making process used by companies to evaluate long-term investments in large capital assets" (Hampton, 2011). Zeit (2013) makes the point that construction projects are included in the category of capital investment decisions, and that designers and architects are often involved. Reiter et al. (2000) argue that because of their size and critical strategic nature, "capital investment decisions are among the most
Capital Budgeting and Government Regulations Airline Industry LONG-TERM CAPITAL BUDGETING IN AIRLINE INDUSTRY Government regulation: Why or why not Major reasons for government involvement in a market economy Interests of stockholders and managers: The convergence Airline: Merger or new capital investment LONG-TERM CAPITAL BUDGETING IN AIRLINE INDUSTRY For profit organizations have shareholder's profit maximization as the main aim to pursue. Traditional managerial economics expects that all projects/investments having positive net present value (NPV) shall be initiated by
Litzenberger and Joy (1975) note that in a decentralized system, quantitative measures are more common for evaluating projects, but they also note that for larger projects there is some degree of centralization. This is the case with Stryker, where the most substantial projects are approved by the Board of Directors. Ang (1986) notes, however, that there can be agency problems where the interests of the division are misaligned with the
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