Question
Based on the inputs below prepare a capital budget analysis for this Base Case using the Net Present Value, Internal Rate of Return, Profitability Index
Based on the inputs below prepare a capital budget analysis for this Base Case using the Net Present Value, Internal Rate of Return, Profitability Index and Payback in Years determining whether the project is feasible. Please show your spreadsheet calculations and your final determinations of "go" or "no go" on the project.
Project Inputs:
WACC - the cost of capital (hurdle rate) will 8.5%
Project Investment Outlay, Year 0 - $1,000,000
Project Investment Life - 5 years
Project Depreciation - $200,000 / year
Project Salvage Value - $50,000
Working Capital Base of Annual Sales - 10%
Expected inflation rate per year, Selling Price Per Unit - 2%
Expected inflation rate per year, Manufacturing Cost per unit - 1.5%
Expected inflation rate per year, Fixed operating costs per year - 1.0%
Project Tax Rate - 25%
Units sold per year - 100,000
Selling Price per Unit, Year 1 - $50
Fixed operating costs per year excluding depreciation - $200,000
Manufacturing (Variable) costs per unit, Year 1 - $42.50
Capital Budget Risk Analysis
Using your Base Case prepare the following Risk Analysis from the topics in Chapter
Scenario Analysis:
Base Case Scenario - 100,000 units sold per year - 57% probability
Worst Case Scenario - 25,000 units sold per year - 25% probability
Best Case Scenario - 125,000 units sold per year - 18% probability
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