Capital budgeting case study

Findings — The results of the case studies show that in a favorable wind resource, the federal tax and United States Department of Agriculture incentives as well as state policies such as net metering can make wind turbines a good investment with an internal rate of return of However, if the wind resource is not sufficient, even favorable renewable energy policies will not offset the lost value of the power generation, and thus a wind turbine will be a poor investment decision. Farm businesses should carefully consider all factors before investing in a wind turbine.

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Sugar Cane Irrigation: A Case Study in Capital Budgeting

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You can change your cookie settings through your browser. Open Advanced Search. DeepDyve requires Javascript to function. Please enable Javascript on your browser to continue. Small wind on the farm: a capital budgeting case study Small wind on the farm: a capital budgeting case study Stephen B. Harsh; Lynn Hamilton; Eric Wittenberg Purpose — As the interest in renewable energy increases and the number of federal and state incentives to support renewable energy has also grown in recent years, it seems worthwhile to explore the economics of using small wind energy systems to offset electricity costs on farms.

Small wind on the farm: a capital budgeting case study Stephen B. Harsh ; Lynn Hamilton ; Eric Wittenberg. Read Article. Share Full Text for Free beta. Web of Science. Let us know here. System error.

Merger Model: Assessment Centre Case Study

Please try again! How was the reading experience on this article? The text was blurry Page doesn't load Other:. Details Include any more information that will help us locate the issue and fix it faster for you. Thank you for submitting a report! Submitting a report will send us an email through our customer support system. Submit report Close. All rights reserved. It makes it possible to establish the foreseeable outcomes and explore them. In addition, it encourages creativity.

When defining scenarios, it encourages thinking about possibilities instead of what can happen. This kind of thinking can generate creative ideas and solutions to issues that arise in the future. However, it can oversimplify an issue given that the analysis has to balance with the time and resources available.

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Again, scenario analysis just generated ideas, which need to be put into practice. Question 8: Simulation Analysis. Simulation analysis is a technique of financial analysis, which uses spreadsheets or interactive systems. The uncertain cash flow variables are entered as probability distribution parameters continuously rather than point values.

Values for the uncertain variables are selected with a random number generator. The uncertain variables are then combined to calculate the NPV. This results in a distribution of NPV based on the sample of values selected. The computer software can generate graphs and other statistics, which the decision makers can use to make decisions Lee et al.

Simulation analysis allows investors to convert an investment chance to a choice. Its major advantage is that it can factor in different values for various inputs. In addition, it is also very refined on that computer a computer software cam does not make mistakes. However, its use has a limit by the fact that managers are unable to specify the variables resulting in variables limited values Zio, Another disadvantage is that simulation tends to assume the probability of extreme events such as a financial crisis.

Question 9.

A case study on capital budgeting.

This project has a coefficient of variation of 1. This places the project in the high-risk category since it has a higher coefficient of variation than the common project. The coefficient of variation measures the stand-alone risk. Therefore, it is measured by the variability of the single project. It is a measure of the variability of the expected returns.

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Question The project has a risk above average. Therefore, the risk-adjusted cost of capital yields an acceptable NPV.

Thus, the new line is acceptable. However, considering there are other risk factors to be considered, the decision is not necessarily dependent on NPV. Question Other Subjective Risk Factors. The numerical analysis to determine the risk involved cannot cover all the risk factors involved in a project. The subjective risk factors are not integrated in the numerical analysis of risk. One of the subjective risk factors is expensive lawsuits. An expensive lawsuit will decrease the cash flow in that money is spent in the lawsuit.

Capital Budgeting Case Study Essay - Words

In addition, the name of the company is tarnished which will consequently reduce sales. Reduced sales translate to less cash flow leading to a lower net present value from the initial numerical analysis. Other decision-making elements such as payback period and IRR will also change meaning the initial decision about the viability of the project are compromised. Another subjective risk factor is deployment of assets. The risk analysis initially done incorporates all the assets available.

Capital Budgeting: Case Study (Answering questions) - Math Problem Example

In the course of business, it is possible for the company to deploy some of the assets to other projects thus affecting the project. If the company for example deploys the machinery, production will be interrupted which can result to low supply than demand. Integrating the idea of competition into this scenario, the company will make a loss. Deployment of assets can affect other activities rather than production. There are those assets that aid the production process and their interruption translates to an interruption in the production process. Thus, in addition to the calculated project risk, there are those other hidden risks, which can make a project have a high risk than that found through analysis. Amer, M. A review of scenario planning. Futures , 46 , Baker, H. Capital budgeting valuation: Financial analysis for today's investment projects.

Hoboken, NJ: Wiley. Lee, A.