Resource:
Capital Budgeting Decision Models Grading Guide
Purpose of Assignment The purpose of this assignment is to allow the students to become familiar with and practice the measurement of Net Present Value (NPV), payback, and Weighted Average Cost of Capital (WACC) using Microsoft Excel.
Assignment Steps
Resources: Microsoft® Excel®,
Capital Budgeting Decision Models Template,
Calculate the following problems using Microsoft® Excel®:
- Calculate the NPV for each project and determine which project should be accepted.
Project A Project B Project C Project DInital Outlay (105,000.000) (99,000.00) (110,000.00) (85,000.00)Inflow year 1 53,000.00 51,000.00 25,000.00 45,000.00Inflow year 2 50,000.00 47,000.00 55,000.00 50,000.00Inflow year 3 48,000.00 41,000.00 15,000.00 30,000.00Inflow year 4 30,000.00 52,000.00 21,000.00 62,000.00Inflow year 5 35,000.00 40,000.00 35,000.00 68,000.00Rate 7% 10% 13% 18%
- Your company is considering three independent projects. Given the following cash flow information, calculate the payback period for each. If your company requires a three-year payback before an investment can be accepted, which project(s) would be accepted?
Project D Project E Project FCost 205,000.00 179,000.00 110,000.00Inflow year 53,000.00 51,000.00 25,000.00Inflow year 2 50,000.00 87,000.00 55,000.00Inflow year 3 48,000.00 41,000.00 21,000.00Inflow year 4 30,000.00 52,000.00 9,000.00Inflow year 5 24,000.00 40,000.00 35,000.00
- Using market value and book value (separately), find the adjusted WACC, using 30% tax rate.
Component Balance Sheet Value Market Value Cost of CapitalDebt 5,000,000.00 6,850,000.00 8%Preferred Stock 4,000,000.00 2,200,00.00 10%Common Stock 2,000,000.00 5,600,000.00 13%
