Have you heard about the new tool that is making capital budgeting decisions so easy for business men without accounting knowledge, such as ordinary landlords and budding entrepreneurs, as well as seasoned accountants with MBAs? The tool is an app called Boachsoft Plata which is currently available in the Microsoft Store for Windows devices, and also in the Google Play Store for Android devices.
What is Capital Budgeting?
I am sure some of you may be wondering what capital budgeting is. Capital budgeting is the process used to evaluate the feasibility and potential gains that will result from the implementation of a project which is expected to provide financial returns over a period greater than 1 year. The associated expenditure is called capital expenditure. The converse of this is called operating expenditure, which is an expenditure which is expected to provide benefits over a one year period.
Boachsoft Plata makes it so easy for potential entrepreneurs and businessmen to determine whether going for a loan to undertake a project is indeed worthwhile or not. If you have to choose among several projects, Boachsoft Plata will help you decide the best possible option within a few minutes.
I am going to show you how.
Install Boachsoft Plata
Getting a working version of Boachsoft Plata is very easy. If you use Microsoft Windows, head off to the Microsoft Store and search for Boachsoft Plata. Install it, and you would have a great tool for your financial calculation right on your desktop or Surface Pro Tablet. If you have an Android device, simply search for Boachsoft Plata in the Google Play Store. Boachsoft Plata is also available for Amazon Fire Tablet devices.
However, if you use Linux, MacOS or Apple iOS, then you are out of luck, as Boachsoft hasn’t made the software available on these platforms as yet. The software is currently available in English, Spanish, German, and Italian. The correct language would be displayed when the program starts.
With our tool installed, we are ready to proceed. Start the software. In the home screen click the “Menu” button, and in the menu list that follows select “Capital budgeting planner”.
Obtain The Cost Of Capital
In determining the viability of projects and their present values, we need the cost of capital. As you know, people come by capital to undertake projects or invest in businesses in so many ways. Some use their personal savings. Others borrow money from friends or financial institutions. The lucky ones obtain equity financing through venture capitalists.
However you come by your capital, you still need the cost of capital to determine the viability of your projects. If you have gone for a loan, use this value. If you didn’t, consult your local bank for the average lending rate.
On the title area of the app screen of the capital budgeting planner you should see “IRR/NPV Calculator”. Just below that, close to the right edge of you screen, you should see “Cost of Capital”. Enter the cost of capital in this textbox.
Estimate The Initial Outflow
Before the software can work its magic, we need to enter some more values. The first will be the initial amount that you plan to invest. This is usually called the initial outlay. You would have to do this whether you are planning to setup a new business, or planning to purchase a new machine for your existing business. After obtaining a good estimate of this amount, enter it in the year “0” cashflow field, but precede it with the negative or minus sign. This is because when you spend money, it is an outflow.
Estimate The Inflow For Each Period
Next, you have to estimate the net cash inflow for each of the subsequent years. So you ask yourself, if I invest so much in this project, how much would it accrue in the first year, second year, third year and so on. You must do this for as many years as you desire. Most subsequent cashflows would be inflows, so just enter them in the appropriate year field under the cashflows section. If, however, your estimate is a loss or a net cash outflow, then precede it with the negative or minus sign, as we did earlier.
To estimate the cashflow for a particular year, we first estimate the incremental revenue that would accrue in that year. We then estimate the cost of obtaining that revenue. Deduct the cost from the revenue. Deduct the tax that would be paid on this amount. That should give us the operating cash inflow for that year. Enter it into the appropriate field. Just look at the example below.
Net Profits before taxes 500,000
Taxes (40%) 200,000
Net Profits After taxes 300,000
Net Cashflow Inflow 300,000
Repeat the steps above for each year.
Calculate And Analyze
Next we tap on the calculate button, so the software will calculate the Net Present Value (NPV), internal rate of return (IRR), the payback period, and the EAA for us. This is what we would use in our decision making. I would explain these terms. The payback period tells us the number of years that it will take us to breakeven or get our initial investment back without considering interest rates and inflation. A payback period of 3.5, for example, simply means that we will recoup our initial investment in three and half years. The payback period is an unsophisticated but helpful value.
The internal rate of return (IRR) is simply the discount rate which would result in a net present value of zero. In capital budgeting, we convert all future amounts to their equivalent values today, taking into consideration interest rates and inflation. The IRR is simply the cost of capital (return) which would have given us zero profit or no loss. So far as the IRR is greater than the actual cost of capital, our project would be profitable.
The net present value (NPV) is simply the profit or loss that our project will generate.
With these last two values, we can decide whether or not to accept or reject a business proposal or a capital expenditure. However, we can even do much more. We can compare alternative projects, and choose one if they are mutually exclusive. In doing that however, we ought to tread cautiously. We might be tempted to compare projects using their IRRs. This is usually because people tend to prefer rates of return. However, using the NPV values is the best approach. One project may have an IRR of say 20% with an NPV of $200,000, while another may have an IRR of say 15% with an NPV of $800,000.
Clearly, businessmen who are using Boachsoft Plata are winning, because they are able to determine the viability of projects within minutes, and they are able to this at the office, at home, on a plane, or while on a subway train. The software must be on the list of every shrewd businessman.
Boachsoft Plata has excellent financial calculators for capital budgeting. It also has financial calculators like the time value of money calculator, loan calculator, mortgage calculator, savings calculator and even more.
To install Boachsoft Plata from the Microsoft Store click Windows financial calculators.
To install Boachosft Plata from the Google Play Store click financial calculators for Android.
Credit: Yaw Boakye-Yiadom – Boachsoft Founder and CEO (Pronounced Yiaw Bwachi- Yiadom)