Capital Budgeting

Current Designs manufactures kayaks. Pedal Boats, Inc. has approached Current Designs about using its rotomold expertise and equipment to produce some pedal boat components for Pedal Boats Inc., Current Designs is interested in exploring this opportunity, but is concerned that the pedal boats are a different shape than the kayaks it currently produces. Current Designs would need to buy an additional rotomold oven in order to produce the pedal boat components. This project clearly involves risks, and management wants to ensure the returns justify the risks. As an intern at Current Designs, you have been asked to prepare an initial evaluation of this proposal. To aid in your analysis, the following information and assumptions have been provided. Present Value tables are include in the 2nd worksheet tab for your use. Enter labels, cell references, formulas, and typed answers where indicated. -Cost of the new rotomold oven exist256,000 -Salvage Value of the new rotomold oven exist8,000 -Discount Rate 15% -Useful Life of the new rotomold oven in years 8 -Depreciation Method Straight-Line -Projected Annual come for this project exist 15, 200 1. Compute Annual Depreciation Expense. 2. Compute Net Annual Cash Flows 3. Compute the Payback Period. 4. What is the approximate Internal Rate of Return of this project? 5. Based on the Internal Rate of Return, would this project be acceptable? Explain. 6. Use the space below to create your own net present value analysis. Your analysis should show all components used to compute net present value. In addition, you should, whenever possible, incorporate formulas and cell references in your analysis. You do not have to use all of the space provided. If you prefer, you can add an additional sheet to this file and create your analysis there. 7. Based on your Net Present Value Analysis, would this project be acceptable? Explain. 8. Save the spreadsheet as YOUR NAME Run 1 and print. 9. Change the following in the data (blue) section and reprint: -Cost of the new rotomold oven exist 240,000 -Projected Ann Net Income for exist 23, 910 10. Print the formulas (CTRL~)