\n

\n Capital Investment\n <\/p>\n

\n For the purpose of this assignment, a\u00a0project\u00a0is defined as any endeavor that had a capital outlay. Pick a project you have recently completed or one you would like to complete in the near future. This could be a project in your home, place of work, or even church or other organization with which you are familiar. Respond to the prompts below.\n <\/p>\n

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• \n Introduce your project with a reflection on the importance of selecting the right projects in which to invest capital. Do we always select those projects that have the highest return on investment (ROI)?\n <\/li>\n
• \n Describe the relationship between risk and return and how you would measure for both in your project. What other factors play into capital budgeting decisions?\n <\/li>\n
• \n Explain how you would calculate the weighted average cost of capital (WACC) and its components for your project.\n <\/li>\n<\/ul>\n

  \n Your essay should be at least three pages in length, not counting the title and reference pages. You are required to cite and reference at least your textbook. Use APA format to cite in-text and reference citations.\n <\/p>\n<\/div>\n

  Capital Investment For the purpose of this assignment, a project is defined as any endeavor that had a capital outlay. Pick a project you have recently completed or one you would like to complete in
  \n 12\/2\/21, 7:50 AM Originality Report https:\/\/online.columbiasouthern.edu\/webapps\/mdb-sa-BB5f85d6ea5857f\/originalityReport\/ultra?attemptId=149d06c9-d092-45fa-9ce4-275b978b748f& \u2026 1\/5 % 15 % 14 % 11 SafeAssign Originality Report CSU SafeAssign Plagiarism Check Tool \u2022SafeAssign Originality Report Generator IV % 40 Total Score : Medium risk George Landry Submission UUID : 07016ba8-4ec1-5ed2-f9ae-b429e74b8c8b Total Number of Reports 1 Highest Match 40 % Capital Investment in Projects.edited.docx Average Match 40 % Submitted on 12\/02\/21 07:48 AM EST Average Word Count 1,015 Highest :\u00a0Capital Investment in Projects.e \u2026 % 40 Attachment \u00a01 Institutional database \u00a0(3) Student paper Student paper Student paper Internet \u00a0(5) scrappysi \ufb01n-izdat repec antiessays educba Global database \u00a0(5) Student paper Student paper Student paper Student paper Student paper Top sources \u00a0(3) Excluded sources \u00a0(0) View Originality Report – Old Design Word Count : 1,015 Capital Investment in Projects.edited.docx 2 1 8 3 9 13 4 6 7 11 5 10 12 2 Student paper 3 scrappysi 7 Student paper 5 Capital Investment in Projects George Landry Columbia Southern University Capital Investment in Projects I am planning to start a project of making smartwatches in the future. Smartwatches are not new in the market but are starting to be mainstream due to advanced technology. Many people today consider having a smartwatch as fashionable, and I believe that my business will boom if I target the right audience and make out- standing products. It is crucial for the right project for capital investment to be picked for various reasons (Rebiasz et al., 2014). First, it saves on money that could have been lost when the wrong investment decisions are made. We cannot talk about investments without considering the money to be spent on projects. Secondly, selecting the right project is fundamental to promote maximum derivation of value by the business. Considering other viable alternative investment decisions is cru- cial to decide on capital investment to get the highest and best value. Furthermore, selecting the right project is essential as it promotes e\ufb00ective risk management and facilitates management functions (Rebiasz et al., 2014). It is worth noting that choosing the best project will reduce the chances of risks, making it easier for man- agement to meet their functions such as planning, organizing, and controlling. We do not always choose projects yielding the most signi\ufb01cant return on invest- ment due to various reasons. First, the highest return on assets is neither an e\ufb00ective tool to gauge return rate nor people’s or organization’s best selection. Some 1 2 12\/2\/21, 7:50 AM Originality Report https:\/\/online.columbiasouthern.edu\/webapps\/mdb-sa-BB5f85d6ea5857f\/originalityReport\/ultra?attemptId=149d06c9-d092-45fa-9ce4-275b978b748f& \u2026 2\/5 Source Matches \u00a0(22) Student paper 100 % Student paper 68 % projects with the highest return on investment might be opposed by organizations or people due to the risks involved, legality, and maturity period (Phillips & Phillips, 2013). Secondly, more rate of returns can translate to higher taxes, which can be pretty problematic to an organization. An organization may incur more losses in the future for selecting a project that has the highest returns on investment. It is fundamental to note that in most cases, more returns from investments repeatedly re- sult in more risks that cannot be witnessed immediately (Phillips & Phillips, 2013). Thus, even if a project yields more returns on investments, it does not mean that it is viable or the best choice. Organizations or entrepreneurs should make practical analyses to establish the risks and bene\ufb01ts of each project before investment (Phillips & Phillips, 2013). The relationship between risks and returns is mainly described as the higher the return on investment, the riskier the investment (Van Dinh, 2021). Nonetheless, one should note that it is not guaranteed that one will realize signi\ufb01cant returns for accepting risky projects. Hence, one must embrace diversi\ufb01- cation in investment as it facilitates a decrease in a portfolio’s risk without necessarily compromising expected returns. Economists and \ufb01nanciers should be aware of the risk and return concept as it is vital to e\ufb00ective capital budgeting and \ufb01nancial decision-making. Moreover, one should note that higher business exposure to \ufb01- nancial risk can translate to more chances of \ufb01nancial returns (Van Dinh, 2021). Other factors that have been found to in\ufb02uence capital budgeting decisions include expected future earnings, legal compulsions, cash in\ufb02ows, the urgency of the project, the nature of the project, and competitor activities. Future payments can remain uniform or \ufb02uctuate. Therefore, a company considers future earnings when making capital investments decisions to choose the best project (Rebiasz et al., 2014). Cash in\ufb02ows and urgency also a\ufb00ect capital budgeting decisions. Projects that have high cash in\ufb02ows and are urgent are likely to receive more capital budgeting and consideration. Additionally, legal compulsions and activities of competitors in\ufb02uence capital budgeting as a company always has to do better than its competitors while abiding by the established rules and regulations (Rebiasz et al., 2014). I would calculate WACC as well as its components for my project through the following steps. First, I would compute WACC by multiplying each capital source cost incurred in the project (debt and equity) by its pertinent weight by market value and then add the products together to gauge the totals. WACC refers to the average of the sources of capital after the cost of tax used by the organization and com- prises long-term debt and common stock in my project (Velez-Pareja, 2019). The WACC’s formula includes the weighted average cost of debt and the weighted average cost of equity. In typical cases, the cost of debt is always lesser than of cost for equity as interest costs are deducted from tax. I will use the following for- mula to calculate WACC for my project: WACC= (RexE\/V) + (RdxD\/V) X (1\u2212T) Where: E= equity valuation in the market D= debt valuation in the market V= total capital valuation E\/V= equity investment funds in percent score D\/V= debt investment funds in percent score Re= equity expense Rd= borrowed funds expense T = tax rate Remember that there are two main components, equity cost, and debt cost. 3 2 4 2 Thus the equity cost of my project used to derive WACC will be computed using the CAPM model that connects the rate of return to volatility (Velez-Pareja, 2019). The formula is as follows: Re=RF+\u03b2x (Rm\u2212Rf) Where: Rf = risk-free rate \u03b2beta\u03b2=levered beta of equity Rm = annual market return Debt Cost It describes the maturity income on a \ufb01rm’s debt and is used in calculating WACC (Velez-Pareja, 2019). It uses the following formula: Debt cost=interest cost (1\u2212T) Where T is the time in years. References Phillips, J., & Phillips, P. (2013). Measuring the Return on Investment on Green Projects and Sustainability E\ufb00orts. Performance Improvement, 52(4), 38-52. https:\/\/doi.org\/10.1002\/p\ufb01.21342 Rebiasz, B., Gawee, B., & Skalna, I. (2014). Capital Budgeting of Interdependent Projects with Fuzziness and Randomness. SSRN Electronic Journal. https:\/\/doi.org\/10.2139\/ssrn.2595635 Van Dinh, D. (2021). Analyzed the relationship between risks and expected returns. Journal of Economic and Administrative Sciences, ahead-of-print (ahead-of- print). https:\/\/doi.org\/10.1108\/jeas-05-2021-0088 Velez-Pareja, I. (2019). The Weighted Average Cost of Capital (WACC) for Firm Valuation Calculations: A Reply. SSRN Electronic Journal. https:\/\/doi.org\/10.2139\/ssrn.1428812 2 5 2 6 6 1 7 8 9 9 10 11 12 5 13 10 1 Student paper Columbia Southern University Original source Columbia Southern University 2 Student paper We do not always choose projects yielding the most signi\ufb01cant return on investment due to various reasons. Original source However, we always do not choose to invest in projects yielding highest investment return 12\/2\/21, 7:50 AM Originality Report https:\/\/online.columbiasouthern.edu\/webapps\/mdb-sa-BB5f85d6ea5857f\/originalityReport\/ultra?attemptId=149d06c9-d092-45fa-9ce4-275b978b748f& \u2026 3\/5 scrappysi 65 % Student paper 69 % antiessays 63 % Student paper 71 % Student paper 68 % Student paper 70 % Student paper 91 % educba 75 % educba 62 % 3 Student paper First, I would compute WACC by multiplying each capital source cost incurred in the project (debt and equity) by its pertinent weight by market value and then add the prod- ucts together to gauge the totals. Original source How to Calculate WACC WACC is calculated by multiplying the cost of each capital source (debt and equity) by its relevant weight, and then adding the products together to deter- mine the value 2 Student paper WACC refers to the average of the sources of capital after the cost of tax used by the or- ganization and comprises long-term debt and common stock in my project (Velez-Pareja, 2019). Original source WACC is an average of the capital sources after-tax cost utilized by the company and in- cludes common stock and long-period debt in my project 4 Student paper The WACC’s formula includes the weighted average cost of debt and the weighted aver- age cost of equity. Original source The WACC is the simple weighted average of the cost of equity and the cost of debt 2 Student paper In typical cases, the cost of debt is always lesser than of cost for equity as interest costs are deducted from tax. Original source Generally, debt cost is lesser than equity cost because interest costs are deductible in tax 2 Student paper Thus the equity cost of my project used to derive WACC will be computed using the CAPM model that connects the rate of return to volatility (Velez-Pareja, 2019). Original source The equity cost used in deriving WACC of my project will be calculated using the model of CAPM that equates return rates to volatility 5 Student paper The formula is as follows: Original source The formula of the CAPM model is as follows:- 2 Student paper Re=RF+\u03b2x (Rm\u2212Rf) Where: Original source Re=Rf+\u03b2x(Rm\u2212Rf) 6 Student paper Rf = risk-free rate Original source Rf \u2013 Risk free rate of return 6 Student paper Rm = annual market return Original source Rm \u2013 Expected market return 12\/2\/21, 7:50 AM Originality Report https:\/\/online.columbiasouthern.edu\/webapps\/mdb-sa-BB5f85d6ea5857f\/originalityReport\/ultra?attemptId=149d06c9-d092-45fa-9ce4-275b978b748f& \u2026 4\/5 Student paper 100 % Student paper 100 % Student paper 100 % \ufb01n-izdat 64 % \ufb01n-izdat 100 % Student paper 100 % Student paper 100 % Student paper 67 % Student paper 94 % 1 Student paper Phillips, J., & Phillips, P. Original source Phillips, J., & Phillips, P 7 Student paper Measuring the Return on Investment on Green Projects and Sustainability E\ufb00orts. Performance Improvement, 52(4), 38-52. Original source Measuring the Return on Investment on Green Projects and Sustainability E\ufb00orts Performance Improvement, 52(4), 38-52 8 Student paper https:\/\/doi.org\/10.1002\/p\ufb01.21342 Original source https:\/\/doi.org\/10.1002\/p\ufb01.21342 9 Student paper Rebiasz, B., Gawee, B., & Skalna, I. Original source Link (In Russ.) Rebiasz B., Gawe\u0142 B., Skalna I 9 Student paper Capital Budgeting of Interdependent Projects with Fuzziness and Randomness. Original source Capital Budgeting of Interdependent Projects with Fuzziness and Randomness 10 Student paper SSRN Electronic Journal. Original source SSRN Electronic Journal, 11 Student paper Journal of Economic and Administrative Sciences, ahead-of-print (ahead-of-print). Original source Journal of Economic and Administrative Sciences, ahead-of-print(ahead-of-print) 12 Student paper https:\/\/doi.org\/10.1108\/jeas-05-2021-0088 Original source https:\/\/doi.org\/10.1108\/jeas-03-2020-0033 5 Student paper Velez-Pareja, I. Original source A., & Velez-Pareja, I 12\/2\/21, 7:50 AM Originality Report https:\/\/online.columbiasouthern.edu\/webapps\/mdb-sa-BB5f85d6ea5857f\/originalityReport\/ultra?attemptId=149d06c9-d092-45fa-9ce4-275b978b748f& \u2026 5\/5 repec 100 % Student paper 100 % 13 Student paper The Weighted Average Cost of Capital (WACC) for Firm Valuation Calculations: Original source The Weighted Average Cost of Capital (WACC) for \ufb01rm valuation calculations 10 Student paper SSRN Electronic Journal. Original source SSRN Electronic Journal,<\/p>\n","protected":false},"excerpt":{"rendered":"

  Capital Investment For the purpose of this assignment, a\u00a0project\u00a0is defined as any endeavor that had a capital outlay. Pick a project you have recently completed or one you would like to complete in the near future. This could be a project in your home, place of work, or even church or other organization with which […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_joinchat":[]},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/posts\/280540"}],"collection":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/comments?post=280540"}],"version-history":[{"count":0,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/posts\/280540\/revisions"}],"wp:attachment":[{"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/media?parent=280540"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/categories?post=280540"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/qualityassignments.net\/wp-json\/wp\/v2\/tags?post=280540"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}