Capital Budgeting Decisions Instructor FINC 3310 SPRING 2018 Learning Objectives 1. Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem-solving and critical thinking skills and m ake long-term investment decisions S 200,000 1) Life Period of the Equipment 4 years 8) Sales for first year (1) 2) New equipment cost 3) Equipment ship & install cost $ (35,000) 10) Operating cost (60% of Sales) $ 4) Related start up cost 5) Inventory increase 6) Accounts Payable increase S 5,000 12) Marginal Corporate Tax Rate ( 7) Equip. salvage value before tax 15,000 13) Cost of Capital (Discount Rate) 5% (120,000) -60% S(200,000) 9) Sales increase per year $ (5,000) (as a percent of sales in Year 1) S 25,000 11) Depreciation (Straight Line)YR S (60,000) 21% 10% ESTIMATING Initial Outlay (Cash Flow, CFo, T 0) CFO CF1 CF2 CF3 CF4 Year Investments 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3)