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Posted on Jul 23, 2024

fon 200000 c E PRINCIPLES OF FINANCIAL MANAGEMENT Capital Budgeting Decisions 11. Learning Objectives Develop proforma Project Income Statement Using Excel Spreadsheet 5. Compte Net

fon 200000 c E PRINCIPLES OF FINANCIAL MANAGEMENT Capital Budgeting Decisions 11. Learning Objectives Develop proforma Project Income Statement Using Excel Spreadsheet 5. Compte Net Project Cash fow, PV, RR and Payback period Dein Problem Solving and cal Thinking Skills 7 1) Project Life (years) 4 2) New equipment cost 103) Shipping & installment costs $(35,000) 114) Related start up cost $ (5,000) 125) Inventory increase $ 25,000 ta 6) Accounts Payable increase $ 5,000 17) Equip. Salvage Value Estimated at the End of Year 4 $ 15,000 15 B) Sales for first year (1) 189) Sales increase per year 5% 110) Operating cost (60 Percent of Sales) 60.00% 1a 11) Depreciation Straight Line = Initial CostYR $(60,000) 112) Tax rate 35% 2013) Cost of Capital (WACC) 10% 21 22 YEAR 0 21 Equipment cost 24 Shipping and Install cost $(35,000) 25 Start up expenses $ 15,000) Total Capital Spending 21 After Tax Salvage Value in Year 4. Salvage - T(Salvage - Book Value) Net Working Capital (Inventory Increase - A/P Increase) $(20,000) Pro-Forma Income Statement Revenue Question 1 2 3 4 2 $ 20,000 Capital Fudgeting Project HINC 330) - Camily Mode Excel Page Layout Form Daca Hele Ace Comune MAA Pu wa tort O. A Mi a Cant- Accent 5 - % de Fome Coma og om AL Currency of Painter Currency Pencent Font wannen het She 200000 D 12) Tax rate 13) Cost of Capital (WACC) 35% 10% 1 2 4 4 YEAR 9 Equipment cost Shipping and Install cost $(35,000) Start up expenses $ (5,000) 5 Total Capital Spending HOW After Tax Salvage Value in Year 4: Salvage - T(Salvage - Book Value) Net Working Capital (Inventory Increase - A/P Increase) $(20,000) ? $ 20,000 > FARMA Pro-Forma Income Statement Revenue Operating Cost Depreciation EBIT Taxes Net Income (LOSS) $160,000) $ 20,000 $ 7,000 $ 13,000 1 2 3 4 Capital Spending NWC OCF Cash Flow from Assets NPV IRR Payback Period Q1 Would you accept the project based on NPV, IRR? Would Question Mesec - % Comma 10 Formatting Currency Currency 11 FONT Percent Ali Nel 99 200000 Styles A Payback Period D E H Q#1 Would you accept the project based on NPV, IRR? Would you accept the project based on Payback rule if project cut-off period is 3 years? Q#2 SENSITIVITY and SCENARIO ANALYIS: Capital Budgeting (Investment) Decisions (a) Estimate NPV, IRR and Payback period of the project if the Marginal Corporate Tax is reduced to 20%. Would you accept or reject the project? Assume Straight-Line Depreciation. (b) Estimate NPV, IRR and Payback period of the project if Equipment is fully depreciated in first year and tax rate is reduced to 20%. Would you accept or reject the project? (c) As a CFO of the firm, which of the above two scenarios (a) or (b) would you choose? Why? Q#3 Explain to your CEO what the NPV results mean. Q#4 What are the advantages and disadvantages of using only the Payback method? Q#5 What are the advantages and disadvantages of using NPV versus IRR? Q#6 Explain the difference between independent projects and mutually exclusive projects. When you are confronted with Mutually Exclusive Projects and have conflicts with NPV and IRR results, which criterion would you use (NPV or IRR) and why? Type here to wth 5 fon 200000 c E PRINCIPLES OF FINANCIAL MANAGEMENT Capital Budgeting Decisions 11. Learning Objectives Develop proforma Project Income Statement Using Excel Spreadsheet 5. Compte Net Project Cash fow, PV, RR and Payback period Dein Problem Solving and cal Thinking Skills 7 1) Project Life (years) 4 2) New equipment cost 103) Shipping & installment costs $(35,000) 114) Related start up cost $ (5,000) 125) Inventory increase $ 25,000 ta 6) Accounts Payable increase $ 5,000 17) Equip. Salvage Value Estimated at the End of Year 4 $ 15,000 15 B) Sales for first year (1) 189) Sales increase per year 5% 110) Operating cost (60 Percent of Sales) 60.00% 1a 11) Depreciation Straight Line = Initial CostYR $(60,000) 112) Tax rate 35% 2013) Cost of Capital (WACC) 10% 21 22 YEAR 0 21 Equipment cost 24 Shipping and Install cost $(35,000) 25 Start up expenses $ 15,000) Total Capital Spending 21 After Tax Salvage Value in Year 4. Salvage - T(Salvage - Book Value) Net Working Capital (Inventory Increase - A/P Increase) $(20,000) Pro-Forma Income Statement Revenue Question 1 2 3 4 2 $ 20,000 Capital Fudgeting Project HINC 330) - Camily Mode Excel Page Layout Form Daca Hele Ace Comune MAA Pu wa tort O. A Mi a Cant- Accent 5 - % de Fome Coma og om AL Currency of Painter Currency Pencent Font wannen het She 200000 D 12) Tax rate 13) Cost of Capital (WACC) 35% 10% 1 2 4 4 YEAR 9 Equipment cost Shipping and Install cost $(35,000) Start up expenses $ (5,000) 5 Total Capital Spending HOW After Tax Salvage Value in Year 4: Salvage - T(Salvage - Book Value) Net Working Capital (Inventory Increase - A/P Increase) $(20,000) ? $ 20,000 > FARMA Pro-Forma Income Statement Revenue Operating Cost Depreciation EBIT Taxes Net Income (LOSS) $160,000) $ 20,000 $ 7,000 $ 13,000 1 2 3 4 Capital Spending NWC OCF Cash Flow from Assets NPV IRR Payback Period Q1 Would you accept the project based on NPV, IRR? Would Question Mesec - % Comma 10 Formatting Currency Currency 11 FONT Percent Ali Nel 99 200000 Styles A Payback Period D E H Q#1 Would you accept the project based on NPV, IRR? Would you accept the project based on Payback rule if project cut-off period is 3 years? Q#2 SENSITIVITY and SCENARIO ANALYIS: Capital Budgeting (Investment) Decisions (a) Estimate NPV, IRR and Payback period of the project if the Marginal Corporate Tax is reduced to 20%. Would you accept or reject the project? Assume Straight-Line Depreciation. (b) Estimate NPV, IRR and Payback period of the project if Equipment is fully depreciated in first year and tax rate is reduced to 20%. Would you accept or reject the project? (c) As a CFO of the firm, which of the above two scenarios (a) or (b) would you choose? Why? Q#3 Explain to your CEO what the NPV results mean. Q#4 What are the advantages and disadvantages of using only the Payback method? Q#5 What are the advantages and disadvantages of using NPV versus IRR? Q#6 Explain the difference between independent projects and mutually exclusive projects. When you are confronted with Mutually Exclusive Projects and have conflicts with NPV and IRR results, which criterion would you use (NPV or IRR) and why? Type here to wth 5