Capital Budgeting Decisions 3310-FALL 2018-Group Assianment fup to THREE aroue members 1. Understand how to use Excel spreadsheet (a) Develop proforma Project Income Statement Using Excel Spreadsheet b) Compute Net Project Cash flows, NPV, Skills 1 Life Period of the Equipment -4 years 7) Sales increase per year 200,000) 8) Operating cost $ (120,000 3) Equipment ship & install cost 4) Related start up cost 5) Equip. Salvage Value 6) Sales for first year (1) (35,000) (60 Percent of Sales) -60% 5,00019) Depreciation (Straight Line/YR 15,000 rate Marginal Tax Rate 21 10% 200,000 11) Cost of Capital (WACC) ESTIMATING Initial Outlay (Cash Flow,CFo, T-0 CFO CF1 CF2 CF4 Year 1 Equipment cost Total Initial Outlay Revenue Cost Net Income back Total Operating Cash Flow 1) Salvage value r tax Total Project Net Cash Flows Payback IRR 01 Would you accept the project based on NPV IRR? O# Would you accept the project based on Payback rule if project cut-off is 3 years? Qu2 How would you explain to your CEO what NPV means? Q#3 what are advantages and disadvantages of usingonlpaybackmethod? Q#4 What are advantages and disadvantages ofusingNPVversus IRR? Q&5Explainthedifferencebetween independentprojects andmutually exclusiveprolect