PLEASE HELP BUS 303 Business Finance

Capital Budgeting Analysis

Objective: Student demonstrates ability to

1. Utilize several capital budgeting concepts. 2. Complete required calculations. 3. Present written recommendation to senior management based on resulting data.

Scenario: KH Enterprises is considering purchasing a smaller company or developing a similar product in order to grow the company. Cost for both options is $23,000,000. Discount rate for both projects is 7%.

Cash inflows for each options are below.

Year	Option A: Purchase Co.	Option B: New Product
1	$ 4,250,000	$ 4,500,000
2	10,000,000	6,000,000
3	8,500,000	7,500,000
4	5,000,000	9,000,000

Directions: Utilizing cell references and formulas, use the data in the Excel file provided to prepare

A. Calculations use the tabs provided for details of calculations move final values to summary tab using cell references.

1. Baseline - Payback period calculation. Textbook page 384 has example. You need to use Excel to make your calculations.

2. Baseline - Net Present Value (NPV) work the process step-by-step then utilize the NPV formula under the Formulas, Financials, tab. *See Table 12.4 in text page 386 for example.

Note: you will be calculating the NPV using the two methods shown on Table 12.4. Use 7% discount rate.

3. Baseline - Internal Rate of Return (IRR) and Modified Internal Rate of Return (MIRR) utilize the IRR and MIRR formulas under the Formulas, Financial, tab in Excel. *See Table 12.5 in text page 388 for example. Use 3% as the reinvestment rate.

4. Re-calculate Payback, NPV, IRR, and MIRR assuming the cash inflows are actually

Year	Option A: Purchase Co.	Option B: New Product
1	$ 9,000,000	$ 4,500,000
2	8,100,000	12,000,000
3	6,250,000	7,500,000
4	5,750,000	6,000,000

B. Prepare written report of your recommendation to senior management of KH Enterprises. Be ready to discuss recommendation in class.

1. Using the baseline calculations recommend an option (purchase smaller company or develop new product) to senior management.

2. State if changing the cash inflows changed your baseline recommendation. Describe how that changed the results and why.

3. Support your recommendation(s) with facts based on your Excel calculations. Refer to computations in Excel file provided as attachment.

4. Close statement by stating your final recommendation. C. Submit Word document and Excel file to Blackboard.