Accounting 2020 - Introduction to Managerial Accounting Fall 2023 Excel Project - Capital Budget Analysis Cleveland Corporation Cleveland Corporation is a relatively young company that has enjoyed great financial success and a very strong growth pattern. However, Cleveland's management realizes that the company has outgrown its "seat of the pants" management style, and must start to develop more sophisticated means of analyzing financial decisions. For example, the company is currently considering two projects, both of which cost the same and, over a 5-year life, will return the same amount of income to the company. To aid in choosing between these projects, the CFO has asked for an Excel model that can determine each project's net present value, profitability index, payback period, and internal rate of return, based on the project's cash flow projections. Your job is to develop a program that can analyze these projects, but that is also flexible enough to handle other projects with a variety of lives, cash flow patterns, and hurdle rates. Following are the specifics regarding the projects currently under consideration: Project 1: This project would require an initial investment of $800,000 to replace current equipment with newer technology. The replaced equipment could be sold immediately for $100,000. The new equipment is expected to generate incremental revenues of $400,000 and incremental costs of $200,000 annually. It would also require a major overhaul at the end of 3 years, at a cost of $60,000. The equipment is expected to last for 5 years, and to have no salvage value at that time. This project would require working capital of $50,000 initially. Project 2: The Initial investment for Project 2 would also be $800,000, and the project is expected to last 5 years. This would be a new venture for Cleveland, so no existing equipment would be sold. Because it is a new business, revenues are expected to grow from $200,000 in year 1, to $300,000 in year 2, to $500,000 annually in years 3 through 5. Likewise, costs are estimated at $100,000 in year 1, $150,000 in year 2, and $250,000 annually in years 3 through 5. The equipment is expected to have a salvage value of $50,000 at the end of 5 years. Hurdle Rate: The company believes that a hurdle rate of 6% is appropriate for both these projects.

\begin{tabular}{|c|c|c|} \hline \multicolumn{3}{|l|}{ Project Summaries: } \\ \hline & Project 1 & Project 2 \\ \hline Net (undiscounted) cash flows & & 0 \\ \hline Net present value & & \\ \hline Payback period & & \\ \hline Profitability index: & & \\ \hline Internal rate of return: & & \\ \hline & & \\ \hline Recommendation: & & \\ \hline \end{tabular} Cleveland Corporation Capital Budget Projections Project: 1 \begin{tabular}{|c|c|c|c|c|c|c|c|c|} \hline \multirow{2}{*}{ Hurdle Rate: } & & & & & & & & \multirow{4}{*}{Year7} \\ \hline & 6% & & & \multirow[b]{2}{*}{Year3} & \multirow[b]{2}{*}{ Year 4} & & & \\ \hline Project cash flows: & Time0 & Year1 & Year 2 & & & Year 5 & Year6 & \\ \hline \multirow{2}{*}{\multicolumn{8}{|c|}{\begin{tabular}{l} Initial investment \\ Salvage value of replaced asset \end{tabular}}} & \\ \hline & \multicolumn{8}{|c|}{\begin{tabular}{l} Savage value of replaced asset \\ Working Capital \end{tabular}} \\ \hline \multicolumn{9}{|l|}{\begin{tabular}{l} Annual savingstrevenues \\ Annual costscash oulflows \end{tabular}} \\ \hline \multirow{2}{*}{\multicolumn{9}{|c|}{\begin{tabular}{l} Annual costsicash outflows \\ Overhaullrefurbishment cost \end{tabular}}} \\ \hline & & & & & & & & \\ \hline \multicolumn{9}{|l|}{ Net annual cash flows } \\ \hline Present value factor & 1.000 & 0.943 & 0.890 & 0.840 & 0.792 & 0.747 & 0.705 & \\ \hline Present value of annual cash flows & 5 & 5 & 5 & $ & $ & $ & $ & \\ \hline \multirow{2}{*}{\multicolumn{9}{|c|}{ Net Undiscounted Cash Flow: s }} \\ \hline & & & & & & & & \\ \hline \multirow{2}{*}{\multicolumn{9}{|c|}{ Net Present Value of project: $}} \\ \hline & & & & & & & & \\ \hline Payback Period: & \$ - & $ & $ & $ & \$ - & $ & $ & \\ \hline Profitability Index: & \#DIVY0! & & & & & & & \\ \hline Fritadily inaex. & HDIro! & & & & & & & \\ \hline Internal Rate of Ret & # & & & & & & & \\ \hline \end{tabular}