FIN 301 - Capital Budgeting Assignment
WRITING PART: Submission format: Word Document
You have recently been hired by XYZ corporation and your first assignment is to help them decide which of these two options should be pursued. You would like to apply the capital budgeting and Time Value of Money concepts you have learnt in FIN 301 to analyze the solution and present it to your boss in three days.
Conduct the analysis and calculate Payback period for each option, IRR of each option and PI and NPV for each option at four Discount Rates (R) of 9%, 12%, 15%, 18%, 21%
Write a memo to your boss, explaining the results of your analysis, your decision and include a table and a chart showing your analysis.
Make sure to compare IRR in your decision making. Make sure to discuss changing NPV values at different discount rates and how it impacts your decision in choosing the project.
Requirements:
1 Compute Pay Back for each Option
2 Compute IRR for each Option
3 Compute NPV and PI for each option using discount rates:
R 9%
12%
15%
18%
21%
NPV Profile chart with R on X Axis and NPV on Y axis (Two lines one for each NPV and NPV (B))
A one page professional memo written in MS Word explaining your decision between options A and B.
Grading:
Excel Analysis: 70% of overall assignment grade
Word memo: 30% of overall assignment grade
Timeliness: A 5% penalty for every day delayed. Assignment will not be accepted after 5 late days.
Note: Use Workout Sheet to compute and showcase your work. IT IS IMPORTANT THAT IRR & NPV IS COMPUTED USING EXCEL IN BUILT FUNCTIONS.
EXCEL PART: Submission format: Excel File
ABC Corporation has a machine that requires repairs or should be replaced.
Has evaluated the two options and calculated the cash flows resulting from each option as follows:
Option A: Repair the Machine
Year Cash Flow
0 $71,300.00
1 $19,500.00
2 $35,550.00
3 $19,780.00
4 $22,100.00
5 $20,100.00
Option B: Buy a new Machine
Year Cash Flow
0 $323,800.00
1 $56,500.00
2 $121,000.00
3 $122,500.00
4 $101,600.00
5 $118,100.00
Pay Back
A
B
R
PIA
PIB
9%
12%
15%
18%
21%
