Capital Budgeting Decision

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

Calculate the following problems using Microsoft® Excel®. Note – the system will not hold table formatting for presentation purposes here in the instructions; please review the template provided below in the resources section for numbers in proper alignment.

Calculate the NPV for each project and determine which project should be accepted.

Project A Project B Project C Project D

Initial Outlay (105,000.00) (82,000.00) (110,000.00) (75,000.00)

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 205,000.00 179,000.00 109,000.00

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 8,000.00

Inflow year 5 24,000.00 40,000.00 35,000.00

Using market value and book value (separately), find the adjusted WACC, using 16% 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 11%

Common Stock 2,000,000.00 5,600,000.00 13%

Include the functional formulas utilized in Microsoft® Excel® for your answers presented (in other words – do not simply type answers in the spaces required).


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