Many companies strive to continue to grow and develop. Some companies grow through the expansion of existing operations and increased utilization of existing assets. Others grow through the acquisition of firms within their industry or by purchasing a firm that opens up new direction for them. No matter which method a company selects, capital budgeting is an important part of a systematic expansion plan. Consider the expansion activities of Carnival Corporation , the cruise ship company.

1. Go to Carnival Corporation’s home page at www.carnivalcorp.com. What cruise lines does Carnival own or have an interest in? Now go to the page “Corporate Information.” How many ships does Carnival currently operate? What type of plans does the firm list for future expansion? What does this information indicate about the intent of the firm?

2. As we can see, the firm has looked ahead to buying new ships. To get additional information, click on the link to “Investor Relations” and then “Financial Reports.” Select the most recent annual report and open it. Go to the section on Highlights near the beginning of the report. Looking at passengers carried and passenger capacity, examine how capacity available and capacity used have changed over the past 5 years.

3. Now examine the CEO’s letter. What does the letter tell the investor about new investment during the current year and investment plans for the future?

4. Let’s look at the Statement of Cash Flows to see if we can determine where the firm got the cash to pay for the new ships. Based on your review of the cash flow statement, how much money did the firm invest in new property and equipment? Did Carnival generate the cash to pay for this investment from operations or from financing activities?