Capital Budgeting: The Case of Change in The Capital Structure

• In Event: Management Accounting

Abstract

Nima One is an Iranian-Italian startup providing value added services in the telecommunication industry in Iran. The case is happening less than a year after it was founded, and up to that point, its only service was broadcasting text-based content on cell phones. For its second-year budget, the marketing department forecasted a gradual 250% growth in the average number of text-based service subscriptions. On the other hand, the CEO believed that Nima One needed a sharp increase in the number of subscriptions by signing a contract with the largest mobile phone carrier of the country (MCI). However, the CFO cast doubt on the profitability of this idea and it led to a conflict between him and the CEO. This case is intended for use in a capstone undergraduate Managerial Accounting course, Financial Management, or a master’s level Theory of Finance Class. Students in these courses should be able to draw from their knowledge in the field, specifically those topics related to time value of money and the discount rate to analyze the case in accordance with the two major methods of investment appraisal. The students should be able to understand how changes in the capital structure of a company can affect the analysis of capital budgeting.

Author

• Mohammad Tavakolifar, Morgan State University