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Capital Budgeting

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my-huyen pham

on 13 December 2012

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Transcript of Capital Budgeting

Gary Fung
My-Huyen Pham
Amy Wu Capital Budgeting: Wal-Mart About Wal-Mart Largest retailer in the world
Offers wide assortment of products and services to millions of customers in over 27 different countries.
Began in 1962 when Sam Walton opened his first store in Rogers, Arkansas.
MISSION: provide his consumers with the lowest prices everyday on a wide variety of merchandise.
1970- became a publicly traded company and listed on the New York Stock Exchange (NYSE) and stocks were sold at a market price of $16.50 a share.
100% stock split a year later and sold at $47 a share and ever since, there has been a total of 9 stock splits.
2009- Surpassed $400 billion in annual sales for the first time and ranks number one on Fortune 500 list of America’s largest companies. Introducing SuperBattery Incremental, Operating, and Terminal Cash Flows WACC Beta: 0.42
Tax rate: 32.56%
RF: 0.04 (Quoted on DEC 11,2012)
RD: 1.924
WE: E/V=$70,278,000/$195,661,000=35.92%
WD: D/V=$123,943,000/$195,661,000=63.86%
RM: PV=FV/ (1+r) ^t=424.41=1409.93/(1+r)^20=6.18%
RE: RF + (RM - RF)=0.04+ 0.42 (0.0618-0.04)=0.04916 Scenario Analysis There is no doubt a high demand for longer lasting phone battery.
Smart phones are now manufactured with larger screens, faster processors, 4G network, and are basically always active.
Consumers also used many applications such as Facebook, Twitter, Instagram, etc.
All of this is sucking up all the battery life causing the phone to die quicker and can barely make it through an entire day without being charged.
SuperBattery:
Up-to 48 hours of use
Provided for Android and iPhones. This product will save consumers time, money, electricity, and dissatisfaction with their phone.
Environmental friendly because people won’t have to keep going out to buy new batteries to replace their old ones.
Very likely to boost our sales because this will attract the most customers and these batteries are definitely in high demand.
While providing a high-quality product for consumers, we will still be able to stick to our mission of keeping our prices low. NPV IRR SensitivityAnalysis Summary We can accept the Super Battery project because the NPV is positive and the IRR exceeds the 10% rate of return.
Even in the worst case scenario the NPV is still positive.
Wal-Mart can determine what kinds of project they want according to the risk level Group Thoughts Helped us understand more about the capital budgeting process
Confident with the concepts and formulas
Understand how to look up companies’ financial information online
Prefer having a more real life example rather than learning everything from the textbook
Full transcript