Partner Project #$2$: Capital Budgeting

$75$ points

Due April $11,2024$ by $8$ am

Innovative Investments, Inc. is a local firm that specializes in using its available capital to purchase assets

and create small businesses. Innovative Investments receives all revenues and incurs all necessary

expenses for the companies.

Innovative Investments, Inc. hires management positions as required for each new business it develops.

There are only a handful of full$-$time permanent positions. Harvey Cahoon initially reviews all

investment projects. Harvey analyzes the capital budgeting aspect of the projects and determines whether

they will be financially profitable for the company. Harvey then passes along his recommendations to

Cynthia Travis, the CEO$/$President$,$ who makes the final decisions concerning the projects. Even though

Cynthia makes the final decision, she relies heavily on the input received from Harvey.

You have recently been hired by Innovative Investments as a part$-$time assistant to Harvey. Your job is

primarily to run errands for Harvey, to run figures on potential businesses, and otherwise help as needed.

One day, upon arriving at work, you notice that Harvey is absent$.$ Upon entering your office, you see a

note on your desk from Harvey. The note reads, $"$My wife and I are taking a much$-$needed vacation to

Pocatello, Idaho. I trust you to take control of things while I$\text{'}$m away. See you in a couple weeks.

Harvey." You sigh a big sigh of relief that there are only a couple of major business prospects under

review right now and the recommendations aren't due to Cynthia for at least a month.

Just then Cynthia pokes her head into your office. "Good, you're here. We just freed up $$950,000$ that

needs to be put into a good investment as soon as possible. I've received three proposals for the funds,

and I need to know which one will provide the best return and be in the best interest of our company.

Harvey told me that he has a lot of confidence in your work, so I$\text{'}$m depending on you to come up with

the recommendation. I'll need it on my desk by the end of next week." Cynthia places three proposals on

your desk as she walks out of the room.Required: Prepare a recommendation for Cynthia. Assume that Innovative Investments' cost of

capital is $12\%$ after tax and the tax rate is $34\%.$ Assume each of the three investments start on

January $1,2025$ and will be terminated on December $31,2034.$

In your recommendation, include a comparison table showing the payback period,

accounting rate of return, net present value, and internal rate of return for each proposal.

You must identify at least $3$ non$-$quantitative issues for each proposal that were

considered when making your recommendation.

Your group will submit two files on Canvas:

A Word file with a summary write$-$up of your recommendation and justification. $(2-$page

maximum$)$

An Excel file used to compute the capital budgeting metrics for each project. Please use

the template provided. Each potential investment needs to be on a separate tab in the

excel file.

Grading Rubric: Total of $75$ points:

$(10$ points$)$ Format of memo: Well$-$written, conforms to length restriction $(2$ page maximum$)$

$(15$ points$)$ Recommendation reasonable based on analysis and includes a summary table of the

metrics calculated in the excel worksheet.

$(25$ points$)$ Analysis $($based on effort, reasonable assumptions, and accuracy$)$:

Include a tab for each proposal in your Excel spreadsheet showing the relevant cash

flows for each year and calculations for payback, accounting rate of return, net

present value, and internal rate of return. Please use the template provided on

Canvas to complete the Excel spreadsheet.

$(15$ points$)$ Robustness of spreadsheet.

Your spreadsheet should be constructed for what$-$if analysis. $($For example, if the

major inputs are changed, your solution should change$)$

$(10$ points$)$ Identify important non$-$quantitative issues for each proposal $($at least one for each

proposal$).$ These are issues not related to the numbers or calculations in your

spreadsheet. Non$-$quantitative issues DO NOT include changing the assumptions

underlying your calculations.

Note: This is a partner$/$group assignment.

If you have strong feelings about completing it by yourself, you must receive

permission prior to submitting the assignment by sending me an email.

If you complete this by yourself and do not notify me prior to submitting, you will

receive a $"0"$ on the assignment.Potential Investment $1$

Description of Investment: Provide capital to start a local food delivery service.

Capital Needed

$$740,000$ for $10$ electric cars. Each car has an estimated useful life of $10$ years.

$$120,000$ for remodel of leased office space. Office space will be leased in downtown

Salt Lake City. The space will be remodeled to fit the company's needs.

$$70,000$ of this capital will be