Capital Budgeting Decisions

Understand how to use EXCEL Spreadsheet

(a) Develop proforma Income Statement Using Excel Spreadsheet

(b) Compute Net Project Cashflows, NPV, and IRR

1) Life Period of the Equipment = 4 years				8) Sales for first year (1)			$ 200,000
2) New equipment cost			$ (200,000)	9) Sales increase per year			5%
3) Equipment ship & install cost			$ (35,000)	10) Operating cost (60% of Sales)			$ (120,000)
4) Related start up cost			$ (5,000)	(as a percent of sales in Year 1)			-60%
5) Inventory increase			$ 25,000	11) Depreciation (Straight Line)/YR			$ (60,000)
6) Accounts Payable increase			$ 5,000	12) Marginal Corporate Tax Rate (T)			21%
7) Equip. salvage value before tax			$ 15,000	13) Cost of Capital (Discount Rate)			10%

ESTIMATING Initial Outlay (Cash Flow, CFO, T= 0) CF1CF2 CF4 CFO O CF3 3 Year Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Total Initial Outlay Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income Add back Depreciation Total Operating Cash Flow XXXXX XXXXX XXXXX XXXXX $ - $ Terminal: 1) Change in net WC 2) Salvage value (after tax) Total - $ - Salvage Value Before Tax (1-T) 20,000 XXXXX XXXXX Project Net Cash Flows $ - $ - $ - $ - $ NPV = IRR = Payback= ESTIMATING Initial Outlay (Cash Flow, CFO, T= 0) CF1CF2 CF4 CFO O CF3 3 Year Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Total Initial Outlay Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income Add back Depreciation Total Operating Cash Flow XXXXX XXXXX XXXXX XXXXX $ - $ Terminal: 1) Change in net WC 2) Salvage value (after tax) Total - $ - Salvage Value Before Tax (1-T) 20,000 XXXXX XXXXX Project Net Cash Flows $ - $ - $ - $ - $ NPV = IRR = Payback=