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Navistar Trucking Case Study

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1. How do we traditionally define capital budgeting in finance?
Capital budgeting is the process which firms use to evaluate and rank potential expenses or investments. (Accounting Coach, 2016, What is) These type if expenses or investment are long-term and could include things such as rebuilding, purchasing new equipment, buying property or buying new technology.

2. What is the purpose of capital budgeting in a business firm, and how is it used?
The purpose of capital budgeting is to determine if the expense or investment should be pursued. The three methods used are payback period, net present value and the internal rate of return. (Gad,S., 2016, Capital Budgeting) The payback period is the easiest method because it will tell you how long it will take to payback on the initial investment. Net present value as we have learned is how to calculate the cash outflows, cash flow from project and the future cash flow with discount rates. The internal rate of return is the discount rate that makes the net present value of the investment zero. (Ross, Westerfield, Jordan, 2015, Fundamentals)
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Navistar Trucking has adopted a new approach to capital budgeting. What is the fundamental way in which the new approach differs from the traditional approach?

Navistar Trucking has adopted a new approach by having any project or any business has to have an earning rate of greater than 15% if not they will cast it to the wayside. (Online Learning Center, How Navistar) This approach is different from others because of the required rate of

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