Question

write a draft for Capital Budgeting Projecting or Acquisition proposal for Tesla about new major investment for the firm. It can be expansion of existing lines of business, a new line of business, acquisition or merger.

Answer 1

Capital Budgeting Projecting : Capital budgeting is used to analyse whether any project should be accepted or not for

expansition of existing business or new line of business. Capiral Budgeting incude the following steps:

(1) Estimation of Initial investment is first requirement of capital busgeting. First we have to decide what amount will

be initial need to invested. For example if heavy plant have to purchase then determine what cost will be for installing

this plant including all other capital expenditure related to the project.

(2) Estimating cashflow is second most important stem, where determine the annual cost to be incurred, annual income to

be received need to be estimated. While determining annual cashflow inflation rate should be considered.

(3) Determine salvage value, depreciation tax sheild and any other unusual expenses or income to be incurred and received

including estimating tax effect.

(4) Determination of cost of capital on the basis of source of finance to be determine. This is the very important step, because

discounting factor will be decided on the basis of source of fund as to be used.

(5) Computing Net Present Value by discounting projected cashflow using cost of capital (IRR) should be positive to accept any

project, otherwise the same project will be rejected.

(6) Some other factor including environmental effect and political effect also should be considered before accepting any project.