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The capital planning cycle is a multi-year plan on the use of finance in a company that lists the proposed capital projects elaborating on how they would occur and give detailed explanations of each and every project. The capital plan allows evaluation of the projects; enable the company to consolidate projects to reduce costs of borrowing and thus stabilize debts, and also this program fosters cooperation between various departments of the company. The different stages of capital planning cycle include:

Capacity condition evaluation and needs assessment

Capacity condition and needs assessment is a stage whereby the company management ensures that all the requirements for the proposed plans are available and in good condition. The company should make preparation on how necessary materials would be delivered once the plan is in progress and set strict (Sherman, 2005). The assessment of the projects needs helps in bridging the gap between what is required currently and what the projects would demand once their implementation begins.

Need assessment help in clarifying the problems and providing appropriate solutions to identified problems before the plans are put in place. With quality capacity condition and need assessment, the capital plan has higher chances of better performance and achievement of desired goals. The sources of funds are laid down at this stage where the company analyzes the various options available that are less costly and select the most appropriate and that which is less risky.

Project proposal discussions and management

At this stage, the various projects that are to be undertaken in the capital plan are to be summarized so as to give clear intentions for the $100 million funding to be used. Universal Parts Company is a well-established company with strong market niche and the competition it faces from its rival does not significantly affect the company sales since it has laid down measures to remain competitive in the market. Capital plans would aid in improving the services of the company through service match hence there is a need to bring the projects into play so that the company would improve personal service (Sherman, 2005).

The objectives behind undertaking this capital plan for different projects aims at improving the products of UPC Company and take measures to introduce new ones to the market. Also, the company services would be developed and mainly the after sales services. With these objectives in mind, the company would be in a position to remain competitive in the market and provide quality services and products. The management would carry out its function in ensuring the projects are monitored through on-going monitoring of these projects at every stage to determine if the set objectives are achieved. In case of future funding, the company may issue more of its equity shares or depending on the level of debt of the company, it can acquire loans from lending institutions.

Capital project submission

The submission stage of the capital planning cycle entails providing a detailed approved budget based on the different projects to be carried out during the capital plan period stipulated. The management committee will carry out the budget review to approve and determines those projects that have priority over others based on the funds. In a situation where a project requires external financing other than the $100 million invested initially, the board of management will develop a submission to that effect stating the source of finding. Clear elaboration of the availability of the source of funding need to be provided and the effect it would probably have on the operations of the company for the period the company would be paying the debt. After the submissions are made by the board, the committee responsible releases the funds required to undertake those projects that were ready to begin. An agreement is arrived at between the issuing department and the department or committee mandated with the task of ensuring the funds are utilized appropriately, where both teams sign the agreement. The budget committee would then carry out regular reviews of the progress of the capital project and offer advice where necessary.

Financial analysis of the project

This stage involves evaluation of the expected returns from the proposed projects that can be determined by the creation of the various scenarios that are expected to occur and to match them with their probability of occurrence. Historical performance of such projects undertaken in the past would help in providing more information concerning investment variability and in knowing the risks involved with such projects. To determine the future outcome of the capital projects, an extreme estimate, and the least possible outcomes are estimated (Investopedia, 2015). The initial investment of $100 million if acquired from debt financing, the capital structure of the company would change and also if acquired through the issue of shares, the proportion of equity would increase.

The main reason behind UPC decision to undertake the capital project plan would be to generate revenue and maintain its market niche in the market as well as improving the existing services and products it offers. Therefore, the company needs assurance that the costs involved in undertaking those projects would not outweigh the benefits it would derive from them. A detailed analysis should be carried out where all the costs to be involved are taken into consideration and compared to the expected returns from the same projects (Bizfillings, 2012). Expected revenue for a good project should be higher than the expected costs to be involved.

In this regard of the capital plan, various capital budgeting techniques would be put to use to determine if the projects would be viable undertaking or they would not bring any revenue to the company. Such budgeting techniques include net present value, payback period and accounting rate of return. The analysis would be for only some of the proposed project and is completed on the excel sheet.

Reference Bizfillings. (2012, May 24). Bizfillings. Retrieved from Financial analysis of major projects: http://www.bizfilings.com/toolkit/sbg/finance/cash-flow/major-project-financial-analysis.aspx Investopedia. (2015). Investopedia. Retrieved from Complete Guide To Corporate Finance: http://www.investopedia.com/walkthrough/corporate-finance/4/project-analysis/break-even.aspx Sherman, A. J. (2005). Raising capital: Get the money you need to grow your business. New York: AMACOM.