CORNELIA ASSOCIATES After a successful semester you are keen to start the first week of your first 'real' job as an analyst at Cornelia Associates, an econometric research and consulting firm in Mt. Pleasant. DECISION CRITERIA The firm has 2 different internal investment opportunities. A fiscally conservative member of the board of directors insists that all internal investments must be recouped within 2 years. The company uses a 6.5% cost of capital for analyzing internal projects. A B 1 2 3 5 6 (20,000) (50,000) 4,000 8,000 5,000 10,000 6,000 12,000 7,000 8,000 9,000 14,000 16,000 18,000 You are tasked with making a recommendation as to which single internal investment opportunity would benefit the firm the most. Create an Excel worksheet for your calculations. Use and explain the following decision criteria: NPV IRR MURR PB DEB Pl. In your explanation of the decision criteria, do not 'narrate' the formula --- explain what each measurement tells the investor. Create textboxes for your responses or commentary. Management is not sure if the 6.5% cost of capital is correct. Create a data table showing the effects of changing costs of capital, ranging from 3% to 17% in half-percent increments, upon the NPV of Project A and Project B. Create an NPV profile chart. Label the chart, axes, and profiles. Identify and explain the cross-over rate, as well as each firm's intercept of the X axis. Put your explanations in textboxes. CORNELIA ASSOCIATES COST OF CAPITAL One of your take-aways from your finance courses was the importance of using the correct discount rate for analyzing cash flows and investment projects. Another take-away was the importance of using the spell- and grammar check --- for spreadsheet work as well as for text documents --- on every document produced. You have been given an abbreviated balance sheet of the firm, as well as data on historical costs of various funding instruments. Your task is to first find the market costs of these funding instruments and then to establish the market weights of the capital structure of the firm. Ultimately your goal is to check whether the cost of capital currently being used is accurate. If it is not, you must choose the correct cost of capital for the analysis of the capital budget for the new mainframe system proposed below. Before you analyze the capital budget of the mainframe system, comment briefly on the consequences of using the previously given (6.5%) cost of capital rather than the cost of capital that you will have calculated. | The abbreviated balance sheet appears below: CORNELIA ASSOCIATES Book Values 2019 Number of shares 100,000 Current assets 4,000,000 Current liabilities Fixed assets 7,500,000 Notes payable 1,000,000 2,500,000 Long-term debt Common stock 4,000,000 100,000 Retained earnings 3,900,000 Total assets 11,500,000 Total liabilities and equity 11,500,000