FIN 419 WEEK 4 Capital Budgeting Decision Models
FIN 419 WEEK 4 Capital Budgeting Decision Models
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 D | |
Inital 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 | 45,000.00 |
Inflow year 2 | 50,000.00 | 47,000.00 | 55,000.00 | 50,000.00 |
Inflow year 3 | 48,000.00 | 41,000.00 | 15,000.00 | 30,000.00 |
Inflow year 4 | 30,000.00 | 52,000.00 | 21,000.00 | 62,000.00 |
Inflow year 5 | 35,000.00 | 40,000.00 | 35,000.00 | 68,000.00 |
Rate | 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 F | |
Cost | 205,000.00 | 179,000.00 | 110,000.00 |
Inflow year 1 | 53,000.00 | 51,000.00 | 25,000.00 |
Inflow year 2 | 50,000.00 | 87,000.00 | 55,000.00 |
Inflow year 3 | 48,000.00 | 41,000.00 | 21,000.00 |
Inflow year 4 | 30,000.00 | 52,000.00 | 9,000.00 |
Inflow 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 Capital |
Debt | 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% |