Question
Capital Budgeting. In business, you may have to decide how best to spend money on projects. Capital budgeting proposals can be evaluated by looking at
Capital Budgeting.
In business, you may have to decide how best to spend money on projects. Capital budgeting proposals can be evaluated by looking at the cash flows that the project is expected to generate. Your company has some money to spend on projects, and you are looking at three project proposals. Use Excel to determine if each project can be accepted. The required rate of return is 6%. For simplicity, assume that all costs are incurred immediately. Project 1: a new computer system. Cost = $75,000; expected labor savings = $10,000 per year over the life of the system (5 years). At the end of 5 years, the system will be scrapped. Project 2: expand a production line. Cost = $500,000; expected net income generated = $50,000 per year for 10 years. At the end of 10 years, the equipment will be discarded. Project 3: lease new office space for new product support. Cost = $100,000; expected savings from fewer returns = $16,000 per year in years 1-4 and $12,000 per year in years 5-10. After 10 years, the space will be abandoned. Your spreadsheet should include a calculation that displays Y if the project can be approved and N if the project cannot be approved. Highlight in yellow, the project(s) that you would accept.
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