Case Study Analysis and Solutions

Simulation ID: 3357

Abstract:
Simulation Solution for Finance Simulation: Capital Budgeting by Roy Timothy A. Luehrman
Topics Covered Include: Capital Budgeting, Discounted Cash Flows, Project Risk, Net Present Value, Payback Period, Project Finance, Discount Rate, Resource Allocation, Internal Rate of Return, and Capital Rationing
In this single-player simulation, students act as members of the Capital Committee of New Heritage Doll Company, tasked with selecting and allocating capital across the company's three divisions. Students evaluate a diverse set of competing investment proposals and make decisions regarding 27 separate proposals over a five-year period. Students confront a range of project types including replacement investments, expansion investments, investments in mutually exclusive projects, interdependent projects, and projects with growth options. To evaluate them, students examine outlays, cash flow patterns, and common metrics such as NPV, IRR, and Payback, with or without capital constraints. This simulation is appropriate for introductory Finance courses as well as specialized courses in Project Finance, Capital Budgeting, Advanced Corporate Finance, and Accounting. May be appropriate for Strategy and General Management courses in which the topic of resource allocation is explored.
Keywords:
Capital budgeting, Present value, Project finance, Resource management, Risk, Finance Simulation Capital Budgeting Solution

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