Question

Search online and read about Chevrolet Volt. Explain why this was a POOR capital budgeting decision.

Search online and read about Boeing's decision to develop the 757 and 767 jet. Explain why this was a GOOD capital budgeting decision.

Answer 1

The Chevrolet Volt is a plug-in hybrid car manufactured by General Motors and it operates as a battery electric vehicle. Chevrolet volt leads to high sales record during introduction stage but nearly after two years, General Motors is still losing as much as $ 49,000 on each volt it builds.

From the year 2018 to 2019, the sales of Chevrolet volt reduce from 18.306 to 4.91. The reason behind the failure of Chevrolet volt is because of steep $39,995 base price and its complex technology i.e. the car uses expensive lithium-polymer batteries, sophisticated electronics and an electric motor combined with a gasoline engine. Probably these reasons kept prospective buyers away from Chevy showrooms.

Capital budgeting decisions involve an outlay of huge sums of money. It cost GM $89,000 to make each volt so any sale above that variable cost increases the NPV of the project. If we make more units then the costs go up proportionally and if you make fewer, they go down. So we cannot make any assumptions on the calculation of the cost that is involved. The Capital Budgeting in only good when we select a profitable project due to several reasons Chevrolet volt faced many problems in their sales. So it is a poor capital budgeting decision.

The 757 model of model aircraft was made by Boeing and this is designed to replace the Boeing 727. The 757 would go on to have an economy cabin configuration of 3-3 while the 767 would have a twin-aisle configuration of 2-3-2. Boeing ceased production because, at the time, airlines were looking for smaller planes such as the A319/A320 and the B737. Boeing’s biggest competitor, Airbus, continued to build the A321, which is similar in size. Even if its production had stopped, Boeing still made modifications on it. Boeing has finally decided to launch a new single-aisle plane to succeed the 757. It will likely share a similar body to a new 737. The new 757 will be about 20% longer than the current 757-200 (similar to the 757-300) and should be able to fly about 20% farther.

Capital budgeting decisions are central to the company’s success or failure. Boeing’s investment in these planes was $3 billion, more than double the total value of stockholders’ investment as shown in the company’s accounts at the time. By 2002, estimated cumulative profits from this investment were approaching $10 billion, and the planes were still selling. So it is considered as good capital budgeting decision.

The Chevrolet Volt is a plug-in hybrid car manufactured by General Motors and it operates as a battery electric vehicle. Chevrolet volt leads to high sales record during introduction stage but nearly after two years, General Motors is still losing as much as $ 49,000 on each volt it builds.

From the year 2018 to 2019, the sales of Chevrolet volt reduce from 18.306 to 4.91. The reason behind the failure of Chevrolet volt is because of steep $39,995 base price and its complex technology i.e. the car uses expensive lithium-polymer batteries, sophisticated electronics and an electric motor combined with a gasoline engine. Probably these reasons kept prospective buyers away from Chevy showrooms.

Capital budgeting decisions involve an outlay of huge sums of money. It cost GM $89,000 to make each volt so any sale above that variable cost increases the NPV of the project. If we make more units then the costs go up proportionally and if you make fewer, they go down. So we cannot make any assumptions on the calculation of the cost that is involved. The Capital Budgeting in only good when we select a profitable project due to several reasons Chevrolet volt faced many problems in their sales. So it is a poor capital budgeting decision.

The 757 model of model aircraft was made by Boeing and this is designed to replace the Boeing 727. The 757 model would go on to have an economy cabin configuration of 3-3 while the 767 would have a twin-aisle configuration of 2-3-2. Boeing ceased production because, airlines were looking for smaller planes such as the A319/A320 and the B737. Also Boeing’s biggest competitor, Airbus, continued to build the A321, which is of similar in size. Even if its production had stopped, Boeing still made modifications on it. Boeing has finally decided to launch a new single-aisle plane to succeed the 757model aircraft. The new 757 will be about 20% longer than the current 757-200 and should be able to fly about 20% farther.

Capital budgeting decisions are very much depend to the company’s success or failure. Boeing’s investment in these planes was $3 billion, more than double the total value of stockholders’ investment as shown in the company’s accounts at the time. By 2002, estimated cumulative profits from this investment were approaching $10 billion, and the planes were still selling. So it is considered as good capital budgeting decision.