Capital Budget Reccomendation

Capital Budgeting Recommendation
Amanda Vetelino
July 29, 2013
Sandria Stehpenson

Capital Budgeting Recommendation
Guillermo Navallez is the owner of Guillermo Furniture, a maker of mid-grade to high end tables and chairs which currently has $1,354,141 in current assets.   For many years Guillermo has enjoyed a relatively inexpensive process to produces his furniture with little to no competition.   Recent changes in the economy have brought new competition and a more demanding workforce to Guillermo’s environment and have forced him to consider changing the way he operates his business.   Performing a capital budget analysis will provide valuable information to assist Guillermo in making sound decisions about the future and direction of his business.   To start, Guillermo has three choices, continue to work as he is and increase prices to cover his costs, implement a new high-tech method to stay in line with his competition or become a distribution center for a foreign company.
Capital Budget Techniques
When comparing projects, managers typically use multiple techniques to ensure an unbiased outcome.   There are many techniques for managers to consider, each with advantages and disadvantages that can easily be calculated using a wide variety of computer software available today (Edmonds, Edmonds, Olds, McNair, Tsay, Schneider,   & Milam, 2007).
Two of these techniques, Net Present Value and the Payback Method, will assist Guillermo in the decision making process.   First is the Net Present Value (NPV) Technique. The NVP concept compares the present value of cash inflows and the present value of cash outflows.   This method is used to analyze the profitability of an investment or project (, na).   The first step is determining the desired rate of return.   If Guillermo is willing to invest in an alternative to producing his furniture there needs to be an acceptable return rate to cover the cost.   According to the data sheets,...