What is a Capital Project Analysis?

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Expert Solution

Capital projects involve the purchase of items as machinery,land, buildings,or any other long term asset.These investments require a large amount of money that needs to be invested in a lumpsum at the time of investment, however the returns are accumulated or accrued over a period of time. So the ultimate goal is to improve the financial performance of the company and for that we need to check the projects' economic and financial feasibility by doing the analysis.

The analysis is done using capital budgeting process that helps in selecting those alternatives that adds most value to the business for a long run within the boundaries of budget, framework of the company and objectives of the project. Making a capital budgeting decision involves analyzing the cash inflows and cash outflows and that analysis can be broadly divided into 6 steprate

1. selection of a discount rate that appropriately refers to the time value of money.\

2. Calculate the present value of the cash outflow.

3. Calculate the net cash inflow over the years, till the end of life of the invested property.

4. Calculate the PV of the annual net cash inflow

5. calculate the net present value, including the salvage value, if any

6. Accept or reject the proposal

jeff jeffy answered 1 year ago

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