Assume that you have received a capital expenditure request for $52,000 for plant equipment and that you are required to do a justification analysis using capital budgeting techniques. The company’s cost of capital is 12% and the equipment (investment) is expected to generate net cash inflows of $13,000 per year for 8 years and then $9,000 for one year.
You are to calculate and explain your quantitative calculations of each of the four capital budgeting techniques listed, then, based upon these calculations, write a summary that provides a justification to proceed or not proceed with the project.
- Calculate the project’s net present value (NPV).
- Calculate the project’s internal rate of return (IRR).
- Calculate the project’s profitability index.
- Calculate the project’s discounted payback period.
- Recommend whether the project should be accepted or rejected and explain why.
To complete this assignment, submit an Excel file with your time value calculations, and a two page paper that explains the calculations and provides your recommended decision and explanation of why that decision is recommended. The paper must be submitted as a Word document and it must follow APA style guidelines.
By February 19, 2013.
|Assignment 3 Grading Criteria|
|Calculated NPV correctly.|
|Calculated IRR correctly.|
|Calculated Profitability Index correctly.|
|Calculated Discounted Payback correctly.|
|Recommended and explained a logical decision.|
|Used Excel function tools properly.|
|Writing Craftsmanship, APA and Ethical Scholarship.|