Project #67148 - Capital Budgeting

 

 

FIN 301, Principles of Finance

Capital Budgeting Assignment (Excel)

 

 

     

THIS ASSIGNMENT IS WORTH 6% OF YOUR OVERALL GRADE AND IS DUE ON APRIL 18, 2015. 

 

 

One of the machines in ABC Corporation’s Massachusetts factory needs to either be repaired or replaced.

ABC has evaluated the two alternatives and calculated the cash flows resulting from each option as follows. 

 

The cost of capital required for the project may be 11%, 13% or 15%;

thus your analysis must be conducted at all three WACC points.

 
                 

Option A: Repair the Machine

Option B: Buy a new Machine

         

Year

Cash Flow

          Year

 CashFlow

       

 

0

(50,000)

0

(400,000)

         

 

1

25,500

1

151,300

         

 

2

20,100

2

155,000

         

 

3

18,900

3

127,800

         

 

4

17,100

4

126,900

         

 

5

13,700

5

125,100

         

 

                 

 

You have recently been hired by ABC corporation and your first assignment is to help them decide which

of these two options should be pursued. You should apply the Capital Budgeting and Time Value of

Money concepts you have learnt in FIN 301 to analyze the solution and present it to your boss in three days.

 
                 

Conduct the analysis and calculate Payback period, IRR, and NPV for each option at three WACC points.

Write a memo to your boss, explaining the results of your analysis.

 

You must conduct all analysis in excel in such a way that anyone can use that model, meaning that any value

can be changed and the model will give new results without manual recalculation.

   
                 

NOTE: YOU WILL ONLY GET FULL CREDIT FOR THE ASSIGNMENT IF YOUR ANALYSIS IS CORRECT,

ALL CELLS IN THE BLUE SHADED AREA ARE EITHER CELL REFERENCES OR FORMULAE AND YOUR

MEMO IS PROPERLY FORMATTED, GRAMMATICALLY CORRECT AND HAS THE RIGHT CONTENT

WITH THE RIGHT FLOW.

 

 

 

 

 

 

                                         

 

 

Subject Business
Due By (Pacific Time) 04/19/2015 03:00 pm
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