Week 2 Post Review: Minimum Of 150 Words APA Format

Week Post 2 Review Minimum Of 150 Words Apa Formatdavidbefore Videos1

Capital budgeting is traditionally defined in finance as the process of planning and evaluating long-term investments to determine their potential profitability and viability. It involves analyzing whether a specific investment—such as equipment, projects, or other large assets—will generate sufficient returns that justify the initial expenditure (Ross, Westerfield, & Jaffe, 2021). The primary goal of capital budgeting is to assist firms in making informed decisions about accepting or rejecting investment proposals based on their expected cash flows and profitability metrics. Companies frequently utilize methods such as the Internal Rate of Return (IRR), Payback Period, and Net Present Value (NPV) to evaluate these investments systematically (Brigham & Ehrhardt, 2019). The decision criteria often include a minimum acceptable rate of return, ensuring that only projects with positive NPV and IRR exceeding the minimum threshold are undertaken. Through these methods, firms aim to maximize shareholder value by investing in projects that enhance long-term profitability and sustainability (Damodaran, 2015). This structured approach aids in resource allocation, helping organizations prioritize projects that align with their strategic financial goals.

Regarding the videos on Navistar Trucking, the firm has shifted from a traditional short-term, annual capital budgeting approach to a more integrated, long-term strategic process. The fundamental difference lies in the focus: traditionally, capital budgets are prepared yearly and are limited to short-term evaluations. The new approach emphasizes maximizing shareholder value by broadening the planning horizon to five or ten years, aligning capital investments with the company's overall strategic objectives (Brigham & Houston, 2018). This long-term planning emphasizes continuous integration with the broader business plan, ensuring capital decisions support long-term growth rather than merely short-term gains. The goal of this new approach is to streamline decision-making by embedding capital planning within the overall business strategy, thereby facilitating better resource allocation and more coherent investment decisions (Ross et al., 2021). A company would potentially abandon a project under this approach if the project fails to meet the predetermined return threshold or if it no longer aligns with the evolving strategic objectives of the organization. In such cases, the opportunity cost of continuing the project outweighs the benefits, prompting a decision to cancel or reevaluate the investment (Damodaran, 2015).

References

• Brigham, E. F., & Ehrhardt, M. C. (2019). Financial Management: Theory & Practice (16th ed.). Cengage Learning.
• Brigham, E. F., & Houston, J. F. (2018). Fundamentals of Financial Management (14th ed.). Cengage Learning.
• Damodaran, A. (2015). Applied Corporate Finance (4th ed.). John Wiley & Sons.
• Ross, S. A., Westerfield, R., & Jaffe, J. (2021). Corporate Finance (12th ed.). McGraw-Hill Education.
• Three Primary Methods Used to Make Capital Budgeting Decisions. (n.d.). Retrieved June 26, 2017, from [source URL].