Reference no: EM132354269

Question

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 45,000.00 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 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%