QRB 501 Week 6 Capital Budgeting Case
Capital Budgeting Case
Five executives at Team A Entertainment would like to expand the company by acquiring another company within a different market. The company has $250,000.00 to spend on the acquisition and the executives have narrowed it down to two corporations. After analyzing the final two corporations in more details the executives must recommend to the board of directors which of the two corporations the company should acquire and outline the details that helped reach this conclusion.
Projected Income Statements
Corporation A shows an increase in revenues over the next five years of 10 percent, and within the same time frame the company expenses will increase by 15 percent. The below income statement shows that Corporation A will maintain a positive net income year over year with a percent change of 41.2 percent from 2014 to 2018.
| Corporation A Projected Income Statement For Years Ending December 31, 2014 through December 31, 2018 | |||||
| Projected 2014 | Projected 2015 | Projected 2016 | Projected 2017 | Projected 2018 | |
| Revenue | $ 110,000 | $ 121,000 | $ 133,100 | $ 146,410 | $ 161,051 |
| Operating Expenses | |||||
| Operating Expense | 23,000 | 26,450 | 30,418 | 34,980 | 40,227 |
| Depreciation Expense | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 |
| Total Expenses | 28,000 | 31,450 | 35,418 | 39,980 | 45,227 |
| Income Before Taxes | 82,000 | 89,550 | 97,683 | 106,430 | 115,824 |
| Tax Expense | 20,500 | 22,388 | 24,421 | 26,607 | 28,956 |
| Net Income (loss) | $ 61,500 | $ 67,163 | $ 73,262 | $ 79,822 | $ 86,868 |
Corporation B shows an increase in revenues over the next five years of 8 percent, and within the same time frame the company expenses will increase by 10 percent. The below income statement shows that Corporation B will also maintain a positive net income year over year with a percent change of 32.3 percent from 2014 to 2018.
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