Reference no: EM131082139
Capital Budgeting Project
Channing Oil Services (COS) is a company that supplies drilling equipment used on off-shore oil platforms. COS uses three different guidelines for determining the viability of capital projects.
- Payback is the time it takes to make back the initial investment.
- Internal Rate of Return is the discount rate that sets the Present Value of future Cash Flows equal to the initial investment.
- Net Present Value is the sum of the Present Values of incoming and outgoing cash flows over a period of time, given a required rate of return.
COS expects capital projects to have a Payback less than or equal to 3 years. Its target Internal Rate of Return is greater than 16%. Its required return for cash flows is greater than 16%.
The company has two projects available for consideration with the following Net Cash Flow projections:
|
Year
|
Project A
|
Project B
|
|
0
|
-$30,000
|
-$45,000
|
|
1
|
$15,000
|
$5,000
|
|
2
|
$10,000
|
$5,000
|
|
3
|
$10,000
|
$20,000
|
|
4
|
$5,000
|
$55,000
|
Your task is to analyze the cash flows and make a recommendation on which project(s) to undertake. COS could take on either Project A, Project B, or both.
1. What is the payback period for each project? Which of the projects would the firm accept based on payback period? You can recommend either one, both or neither one.
2. What is the internal rate of return for each project? Which of the projects would the firm accept based on IRR?
3. What is the NPV for each project? Which of the projects would the firm accept based on NPV?
4. Which of the projects would you recommend that the firm accept? Why (or under what conditions)?
Submit a well-documented, professionally explained Excel workbook as well as a professionally written and formatted Word document summarizing your answers to the questions above (where appropriate, you may refer to specifics in your Excel workbook).
|
Problem regarding the business model
: Describe google customer value proposition and profit formula like to its business model?
|
|
Role of the parol evidence
: Is there a contract? If so, what are the terms? Explain. What is the role of the parol evidence that was offered by Supplier?
|
|
What are the main sources of economic growth
: Describe the key structural differences between the economies of the United States and China. What are the main sources of economic growth in each of these economies? How do these differences impact the countries' economic growth rates and developmen..
|
|
What communication skills would be important to utilize
: Assume you are the newly appointed Nursing Leader in a busy Orthopedic Clinic. Explain how you would educate the entire nursing staff on EBP without "offending" the "seasoned" nurses. What interpersonal and communication skills would be important ..
|
|
Off-shore oil platforms
: Channing Oil Services (COS) is a company that supplies drilling equipment used on off-shore oil platforms. COS uses three different guidelines for determining the viability of capital projects.
|
|
Why do we use percentages in the measure of elasticities
: What is total surplus and why is it greatest at market equilibrium? Use another example to help. Explain the direct and indirect effects of price floors and price ceilings and why they are inefficient AND unfair. Why do we use percentages in the meas..
|
|
Calculate the hypothetical cost of your school materials
: Create a pie chart to show the distribution of costs for the items you purchased.
|
|
Find the slope of the tangent line to the curve
: Let C be the curve x = 2 cost, y = sin t. What kind of curve is this? Sketch the curve. Find the slope of the tangent line to the curve when t = 0, t = π/4, and t = π/2
|
|
Type of bonuses and incentives
: Compare team and individual bonuses and incentives. Determine which type of bonuses and incentives you would prefer. Support your position with examples
|