Capital Budgeting Decisions Exercise (1) Learning Objectives FIN 350 - Spring 2023 1. Understand how to use Excel spreadsheet (a) Develop proforma Project Income Statement Using Excel Spreadsheet (b) Compute Net Project Cash flows, NPV, IRR and PayBack Period (c) Develop Problem-Solving and Critical Thinking Skills 1) Life Period of the Equipment = 4 years 2) New equipment cost 3) Equipment ship & install cost 4) Related start up cost 5) Equip. Salvage Value 6) Sales for first year (1) ESTIMATING Initial Outlay (Cash Flow, CFO, T= 0) Year Investments: 1) Equipment cost Instructor: Dr. Lou $ $ 7) Sales increase per year (200,000) 8) Operating cost: (35,000) 5% $ (120,000) (60 Percent of Sales) -60% $ $ $ (5,000) 9) Depreciation (Straight Line)/YR 15,000 10) Corporate Marginal Tax Rate 200,000 11) Cost of Capital (WACC) $ (60,000) 21% 10% CFO CF1 CF2 0 1 2 CF3 3 CF4 4 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) $ (240,000) EA $ (240,000) Total Initial Outlay Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income $ 200,000 $ $ (120,000) $ 210,000 $ (126,000) $ 220,500 $ (132,300) $ $ (60,000) $ 20,000 $ (4,200) $ 15,800 231,525 (138,915)