Two friends consider opening a driving range for golfers. They estimate such a r
ID: 2734041 • Letter: T
Question
Two friends consider opening a driving range for golfers. They estimate such a range could generate rentals of 20,000 buckets at $3 a bucket in the first year, and expect rentals to grow at 750 buckets a year thereafter. The equipment requirements include ball dispensing machines, the ball pick-up, and the vehicle tractor that will cost $8,000, $2,000, and $8,000 respectively. The net working capital is $3,000 to start with, and is expected to grow at 5% per year. The annual fixed operating cost for balls and baskets will initially be $3,000 and is expected to grow at 5% per year. The fixed costs of leasing the land and its upkeep will be $53,000 per year. The above is an example of:
A.debt financing. B.capital budgeting. C.equity financing. D.trade credit. E.multilateral netting.Explanation / Answer
B.capital budgeting.
Above case fulfill the following capital budgeting requirement:
Stage 1: Identify projects
Stage 2: Obtain in Information
Stage 3: Make predictions
Stage 4: Make Decisions by Choosing Among Alternatives
Stage 5: Implement the decision, Evaluate Performance, and Learn.
Thus, based on meeting above criteria, it is said that this is a straight forward case of capital budgeting
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