Go Tools Window Help Capital Budgeting Case Study instructions. Individual.pdf (page 1 of 6) 80% Mon 2:33 AM a CAPITAL BUDGETING CASE STUDY ANALYSIS ACME Inc. is a multinational conglomerate corporation providing a wide range of goods and services to its customers. As part of its budgeting process for the next year, it has several projects under consideration so it must decide which projects should receive capital budgeting investment funds for this year. As part of the financial analysis department, you have been given several projects to evaluate. However, before you can determine the appropriate valuations of these projects, you need to determine the weighted average cost of capital for the firm since it is used as a threshold of acceptability for projects. Remember that management has a preference in using the market values of the firm's capital structure and believes it current structure (target weight/market weight) is optimal. Market Values of Capital 1. The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $874.78. 2. You also have 100,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90.00. 3. The company has 5 million shares of common stock outstanding with a currently price of $17.00 per share. The stock exhibits a constant growth rate of 10 percent. The last dividend (D.) was 8.65. 4. The risk-free rate is currently 6 percent, and the rate of return on the stock market as a whole is 13 percent. Your stock's beta is 1.22 5. Your firm only uses bonds for long-term financing. 6. Your firm's federal + state marginal tax rate is 40%. (Ignore any carryforward implications) Depreciation Schedule Modified Accelerated Cost Recovery System (MACRS) 5 Yearwoment. Chce tv Bo Tools Window Help Capital Budgeting.Case Study Instruction Individual pdf (page 1 of 6) - 80% Mon 234 AM QE believes it current structure (target weight market weight) is optimal Market Values of Capital 1. The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $874.78. 2. You also have 100,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90.00 3. The company has 5 million shares of common stock outstanding with a currently price of $17.00 per share. The stock exhibits a constant growth rate of 10 percent. The last dividend (D.) was 5.65 4. The risk-free rate is currently 6 percent, and the rate of return on the stock market as a whole is 13 percent. Your stock's beta is 1.22 5. Your firm only uses bonds for long-term financing. 6. Your firm's federal + state marginal tax rate is 40%. (Ignore any carryforward implications) Depreciation Schedule Modified Accelerated Cost Recovery System (MACRS) 5-Year Investment Class Ownership Year Depreciation Schedule 1 20% 2 32% 3 19% 4 12% 5 11% 6 6% Total = 100% ing DD 79 2 825 Mon 2:28 AM a Tools Window Help newman.Instructure.com chege - Yahoo Search Results Proce. This resect Required Strength Capital Budgeting Case Study instructions Individual.pdf (page 6 of 6) point increase over the firm's WACC. 2019 2015 65,000 2014 55.000 2017 85.000 2016 75,000 Years Forecasted Units Sold 2018 95,000 85,000 Project L: This project requires an initial investment of $2,000,000 in equipment which will cost an additional $75,000 to install. The firm will use the attached MACRS depreciation schedule to expense this equipment. Once the equipment is installed, the company will need to increase net working capital by $100,000. The project will last 6 years at which time the market value for the equipment will be $180,000 The project will project a product with a sales price of $32.00 per unit and the variable cost per unit will be $11.00. The fixed costs would be $110,000 per year. Because this project is very close to current products sold by the business, management wants you to apply the WACC as the discount rate to the project. 2018 2014 2019 90,000 2016 48,000 2015 2017 158,000 75,000 Years Forecasted Units Sold 32 000 45,000 . at A XW O 15 DD 14 D FB 80 90 16 OBD F - & SR 0 a Capital_Budgeting_Template FOR_= Home Insert Page Layout Formulas Data Review View Times New... 11 A- A+ Wrap Text General Paste B IV. Merge & Center $. Office Update To keep up to date with security updates, fixes, and improvements, choose Check for Updates GS x fx B C D E F Pred Stock Stock Par Value Divides Per Share Cum price per she Common Stock Cum ma prica per she Last Dividend paid Dividend Growth Rae Risk free Stock Cost of Pod Stock Coat of Equity CAPM Method Cost of Equity DOM Mehed Cost of Equity Al Mwa Mae Weighs Wrighted Aveare Cost of Capit 1 2 Periods left until Maturity 3 Coupon Rate 4 Seal Payment 5 Cur Price 6 Face Value 7 8 9 Tax Rate 10 Cost of DD 11 12 13 Total Boda 14 Total Preford Stock 15 Total Common Stock 16 Tool Fire Value 17 18 19 20 21 22 23 24 25 26 27 28 29 WACC Scenario 1 Scenario 2 + Ready MacBOOK a Capital Budgeting Template FOR STUDENTS Home Insert Page Layout Formulas Data Review View Times New 8 A- A- Wrap Text General Paste B I U - Merge Center $ - % ) Omce Update To keep up-to-date with security updates, fres, and improvements, choose Check for Updates A1 Xfx ORIGINAL SCENARIO A B c H Bel Cost ORICINIONARIO Price Variable THERM TecMC 5 Salvage Value 6 7 Yel Yeard Years Yard 9 Depreciation Rate 10 11 V 13 Ver 14 al Cost 15 EBITDA 16 De 17 EBIT 18 Tu Es Year Year Years PO 21 22 Org Cash Flow 3 Capital Sanding Cash Flow 24 Win Capital Cache 25 T Cash Flow 26 Total Centre Cul How 27 Iata Rate of Pobar -9 O PRICE REDUCTION SCENARIO Price Variable Regler -2 teslie Cou 3 acres NWC S 6 WACC Scenario 1 Scenario 2 + Ready MacBook a Capital_Budgeting Template FOR STUDENTS Home Insert Page Layout Formulas Data Review View Times New... 8 A A Wrap Text General B U Merge & Center $. % * Office Update To keep up-to-date with security updates, foxes, and improvements, choose Check for Updates A64 Xfx 1 D H PRICE REDUCTION SCENARIO Tas Rale A 29 30 31 st 32 C 33 tesis NWC 34 Salvage Value 35 36 37 Cand 38 Depreciation Rate 39 F C Year Year Year 40 Y 2 42 Ver Cut 43 Cout 44 EBITDA 45 Der 46 EBIT Year Year Yara Year 48 Net 49 SO 51 Operating Guide 52 Capital Spending Cash Flow 53 Net Working Capital Cube 54 Tubes SS Taaluma Cashes 56 Bateral Rate of Return 57 Value 58 59 60 del Cart 61 Eestis est 62 decrease in NWC 63 Salope Value 64 Paha Period VOLUME REDUCTION SCENARIO Pris Te Variable Cout dere WACC Scenario 1 Scenario 2 + Ready MacBook a Capital Budgeting Template FOR STUDENTS Home Formulas Insert Page Layout Times New Data Review View A- A- Wrap Text Paste General B 1 U Merge Center $ - 2 Office Update To keep up-to-date with security updates, fes and improvements, choose Check for Updates A93 Xfx D E F H VOLUME REDUCTION SCENARIO Tax Rate Variable Cal Regard hud Cost You Year Year Year 58 59 60 dal Com 61 statea Cost 62 acrease in NC 63 Salvage Value 64 65 66 Original Volume Sold 67 Red Velveld 68 Depreciate 69 70 Ver 71 S 72 Vrt Cout 73 Mud Cost 74 EBITDA 75 Depuis 76 EBIT 77 Tu Es 78 cm 79 80 81 Oprading Cash 82 Capital Spending Cash Mo 83 Net Working Capital Cash 84 Total Cue 85 Tulce Cash 86 tersal Rate of Hearm 87 Pret Value 88 89 90 91 92 93 WACC Scenario 1 Year 1 Paha Period Scenario 2 + Ready MacBook Go Tools Window Help Capital Budgeting Case Study instructions. Individual.pdf (page 1 of 6) 80% Mon 2:33 AM a CAPITAL BUDGETING CASE STUDY ANALYSIS ACME Inc. is a multinational conglomerate corporation providing a wide range of goods and services to its customers. As part of its budgeting process for the next year, it has several projects under consideration so it must decide which projects should receive capital budgeting investment funds for this year. As part of the financial analysis department, you have been given several projects to evaluate. However, before you can determine the appropriate valuations of these projects, you need to determine the weighted average cost of capital for the firm since it is used as a threshold of acceptability for projects. Remember that management has a preference in using the market values of the firm's capital structure and believes it current structure (target weight/market weight) is optimal. Market Values of Capital 1. The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $874.78. 2. You also have 100,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90.00. 3. The company has 5 million shares of common stock outstanding with a currently price of $17.00 per share. The stock exhibits a constant growth rate of 10 percent. The last dividend (D.) was 8.65. 4. The risk-free rate is currently 6 percent, and the rate of return on the stock market as a whole is 13 percent. Your stock's beta is 1.22 5. Your firm only uses bonds for long-term financing. 6. Your firm's federal + state marginal tax rate is 40%. (Ignore any carryforward implications) Depreciation Schedule Modified Accelerated Cost Recovery System (MACRS) 5 Yearwoment. Chce tv Bo Tools Window Help Capital Budgeting.Case Study Instruction Individual pdf (page 1 of 6) - 80% Mon 234 AM QE believes it current structure (target weight market weight) is optimal Market Values of Capital 1. The company has 60,000 bonds with a 30-year life outstanding, with 15 years until maturity. The bonds carry a 10 percent semi-annual coupon, and are currently selling for $874.78. 2. You also have 100,000 shares of $100 par, 9% dividend perpetual preferred stock outstanding. The current market price is $90.00 3. The company has 5 million shares of common stock outstanding with a currently price of $17.00 per share. The stock exhibits a constant growth rate of 10 percent. The last dividend (D.) was 5.65 4. The risk-free rate is currently 6 percent, and the rate of return on the stock market as a whole is 13 percent. Your stock's beta is 1.22 5. Your firm only uses bonds for long-term financing. 6. Your firm's federal + state marginal tax rate is 40%. (Ignore any carryforward implications) Depreciation Schedule Modified Accelerated Cost Recovery System (MACRS) 5-Year Investment Class Ownership Year Depreciation Schedule 1 20% 2 32% 3 19% 4 12% 5 11% 6 6% Total = 100% ing DD 79 2 825 Mon 2:28 AM a Tools Window Help newman.Instructure.com chege - Yahoo Search Results Proce. This resect Required Strength Capital Budgeting Case Study instructions Individual.pdf (page 6 of 6) point increase over the firm's WACC. 2019 2015 65,000 2014 55.000 2017 85.000 2016 75,000 Years Forecasted Units Sold 2018 95,000 85,000 Project L: This project requires an initial investment of $2,000,000 in equipment which will cost an additional $75,000 to install. The firm will use the attached MACRS depreciation schedule to expense this equipment. Once the equipment is installed, the company will need to increase net working capital by $100,000. The project will last 6 years at which time the market value for the equipment will be $180,000 The project will project a product with a sales price of $32.00 per unit and the variable cost per unit will be $11.00. The fixed costs would be $110,000 per year. Because this project is very close to current products sold by the business, management wants you to apply the WACC as the discount rate to the project. 2018 2014 2019 90,000 2016 48,000 2015 2017 158,000 75,000 Years Forecasted Units Sold 32 000 45,000 . at A XW O 15 DD 14 D FB 80 90 16 OBD F - & SR 0 a Capital_Budgeting_Template FOR_= Home Insert Page Layout Formulas Data Review View Times New... 11 A- A+ Wrap Text General Paste B IV. Merge & Center $. Office Update To keep up to date with security updates, fixes, and improvements, choose Check for Updates GS x fx B C D E F Pred Stock Stock Par Value Divides Per Share Cum price per she Common Stock Cum ma prica per she Last Dividend paid Dividend Growth Rae Risk free Stock Cost of Pod Stock Coat of Equity CAPM Method Cost of Equity DOM Mehed Cost of Equity Al Mwa Mae Weighs Wrighted Aveare Cost of Capit 1 2 Periods left until Maturity 3 Coupon Rate 4 Seal Payment 5 Cur Price 6 Face Value 7 8 9 Tax Rate 10 Cost of DD 11 12 13 Total Boda 14 Total Preford Stock 15 Total Common Stock 16 Tool Fire Value 17 18 19 20 21 22 23 24 25 26 27 28 29 WACC Scenario 1 Scenario 2 + Ready MacBOOK a Capital Budgeting Template FOR STUDENTS Home Insert Page Layout Formulas Data Review View Times New 8 A- A- Wrap Text General Paste B I U - Merge Center $ - % ) Omce Update To keep up-to-date with security updates, fres, and improvements, choose Check for Updates A1 Xfx ORIGINAL SCENARIO A B c H Bel Cost ORICINIONARIO Price Variable THERM TecMC 5 Salvage Value 6 7 Yel Yeard Years Yard 9 Depreciation Rate 10 11 V 13 Ver 14 al Cost 15 EBITDA 16 De 17 EBIT 18 Tu Es Year Year Years PO 21 22 Org Cash Flow 3 Capital Sanding Cash Flow 24 Win Capital Cache 25 T Cash Flow 26 Total Centre Cul How 27 Iata Rate of Pobar -9 O PRICE REDUCTION SCENARIO Price Variable Regler -2 teslie Cou 3 acres NWC S 6 WACC Scenario 1 Scenario 2 + Ready MacBook a Capital_Budgeting Template FOR STUDENTS Home Insert Page Layout Formulas Data Review View Times New... 8 A A Wrap Text General B U Merge & Center $. % * Office Update To keep up-to-date with security updates, foxes, and improvements, choose Check for Updates A64 Xfx 1 D H PRICE REDUCTION SCENARIO Tas Rale A 29 30 31 st 32 C 33 tesis NWC 34 Salvage Value 35 36 37 Cand 38 Depreciation Rate 39 F C Year Year Year 40 Y 2 42 Ver Cut 43 Cout 44 EBITDA 45 Der 46 EBIT Year Year Yara Year 48 Net 49 SO 51 Operating Guide 52 Capital Spending Cash Flow 53 Net Working Capital Cube 54 Tubes SS Taaluma Cashes 56 Bateral Rate of Return 57 Value 58 59 60 del Cart 61 Eestis est 62 decrease in NWC 63 Salope Value 64 Paha Period VOLUME REDUCTION SCENARIO Pris Te Variable Cout dere WACC Scenario 1 Scenario 2 + Ready MacBook a Capital Budgeting Template FOR STUDENTS Home Formulas Insert Page Layout Times New Data Review View A- A- Wrap Text Paste General B 1 U Merge Center $ - 2 Office Update To keep up-to-date with security updates, fes and improvements, choose Check for Updates A93 Xfx D E F H VOLUME REDUCTION SCENARIO Tax Rate Variable Cal Regard hud Cost You Year Year Year 58 59 60 dal Com 61 statea Cost 62 acrease in NC 63 Salvage Value 64 65 66 Original Volume Sold 67 Red Velveld 68 Depreciate 69 70 Ver 71 S 72 Vrt Cout 73 Mud Cost 74 EBITDA 75 Depuis 76 EBIT 77 Tu Es 78 cm 79 80 81 Oprading Cash 82 Capital Spending Cash Mo 83 Net Working Capital Cash 84 Total Cue 85 Tulce Cash 86 tersal Rate of Hearm 87 Pret Value 88 89 90 91 92 93 WACC Scenario 1 Year 1 Paha Period Scenario 2 + Ready MacBook