Evaluation of Capital Projects July 28, 2021/2022 Capella University

Evaluation of Capital Projects July 28, 2021/2022 Capella University FPX5014: Applied Managerial Finance Assessment # 2: Evaluation of Capital Projects 1 Evaluation of Capital Projects Introduction “Capital budgeting involves choosing projects that add value to a company. The capital budgeting process can involve almost anything including acquiring land or purchasing fixed assets like a new truck or machinery” (Pinkasovitch, A 2021). Capital budgeting can also refer to an investment appraisal and is typically used by organizations to evaluate significant investments such as new plants or equipment. This process can involve analyzing cash inflows and outflows to decide if the proposed project meets the organization's requirements for this investment to be considered for approval. Capital budgeting techniques used by organizations are net present value (NPV), internal rate of return (IRR), Payback Period, and Profitability Index (PI). ABC Healthcare Corporation., a leader in the healthcare industry that owns hospitals, ambulatory surgical centers, urgent care centers, and outpatient clinics, has identified three potential capital projects that we would like to pursue in the next financial year. The three companies will be analyzed to understand the best scenario to provide the most value to the organization and shareholders. The following analysis will review the current and projected cash flows for the three companies by utilizing capital budgeting techniques to determine which project can maximize shareholder value. This analysis will use capital budgeting tools to compute future cash flows, considering the upfront costs with consideration for each project. A recommendation will be provided to leadership based on the findings for each project. Evaluation of Capital Projects “A capital project is a long-term, capital-intensive investment project with a purpose to build upon, add to, or improve a capital asset. Typically, a capital project is distinct from other company projects as it is large in scale, high in cost, and requires considerable planning relative to other investments" (Barone, A 2020). Capital projects have their costs capitalized or depreciated over time. The thre