A firm has the opportunity to make a capital investment with the expectation that the investment will

add economic value to the firm, increase customer satisfaction, and increase shareholder return. The

investment is for a new supply chain inventory system, using state of the art $5$G technologies and

tracking capabilities. This system was recently developed and very few of your industry competitors are

currently using it$.$

To complete this case you will use Excel to format and solve a capital budget problem. Then you will

answer a series of questions based on your calculations. Finally, you$$ll prepare a analysis of the project

using both derived data and qualitative factors.

The data for the project is as follows:

cash flows for year $1$ are $$500,000$

cash flows for year $2$ are $$1,000,000$

cash flows for year $3$ are $$1,000,000$

year $4$ are $$2,000,000$

year $5$ are $$3,000,000$

year $6$ are $$3,500,000$

year $7$ are $$4,000,000$

year $8$ are $$6,000,000$

year $9$ are $$8,000,000$

year $10$ are $$12,000,000$

current capital cost is $18\%$

initial investment is $$15,000,000$

Project life is $10$ years

For the case analysis, you are to:

$1.$ Create an Excel spreadsheet to format and solve for each of the capital budget calculations.

a$.$ All calculations are to be completed using Excel formulas

b$.$ Format all dollar values w$/$ corresponding currency symbol

c$.$ Use whole dollar amounts, so no decimal or cents figures

$2.$ Answer all budget questions thoroughly. Prepare the narrative in Word or similar program, and

cut and paste the narrative into the Excel spreadsheet.

Please note: do not type the narrative answers directly into the spreadsheet cells.

Capital budget questions:

$1.$ Calculate the project$$s net present value. Is the project acceptable under the NPV decision$-$rule?

Explain.

$2.$ Calculate the project$$s internal rate of return. Is the project acceptable under the IRR decision$-$

rule? Explain.

$3.$ Compare the NPV and IRR result for this investment. Given the result, is the project favorable

and meet the economic considerations of the firm? Is there typically a preference between the

NPV and IRR techniques? Explain.

$4.$ Calculate the payback period for the project. If the firm accepts projects with payback at $7$ years

or less, is the project acceptable?

Capital Budget Analysis

As the finance manager, the capital budget numerical analysis provides a quantitative decision$-$rule for

the project.

Discuss in detail two qualitative factors and considerations related to this investment that the firm

should consider in addition to the quantitative and economic aspects of the project. Support your

narrative analysis with information from the text and any other sources. Identify the sources used to

support your analysis.