Posted: May 3rd, 2016

Which would you choose if you were forming a corporation and trying to raise funds and why?

What are the two primary ways for a company to finance its business? Which would you choose if you were forming a corporation and trying to raise funds and why?

Your co-worker, Sam, tells you that he is going to purchase common stock in a new start-up company in hopes of seeing a big return on his investment. He tells you that he wouldn’t consider preferred stock because there is a very slim possibility of any type of large return. Explain why you agree or disagree.

This question required that a capital budgeting question to be created and a solution provided for it. The question involved a long-term project that a company is considering investing in. The solution uses two capital budgeting methods, the Payback period method and the Net Present Value method, to come to a decision about whether the firm should invest in the project.

PAYBACK PERIOD METHOD AND NET PRESENT VALUE METHODS OF CAPITAL BUDGETING DEMONSTRATED