Please review attached assignment - excel. Directions also attached. I don't feel that my calculations are correct.

6/16/2016 Assessment 6 - MBAFP6154 Spring 2016 Section 01 ASSESSMENT 6 Capital Projects Budgeting Details Attempt 1 Available Attempt 2 Attempt 3 Overview Calculate the payback period, accounting rate of return, internal rate of return, and net present value in a 3page analysis. Capital budgeting techniques allow managers to prioritize resources and make decisions about long term projects and investments. Capital budget data are useful for making purchase recommendations. By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria: Competency 2: Implement budgeting techniques. Accurately calculate elements of a capital budget. Accurately calculate net present value. Competency 4: Manage budget planning, executing, controlling, and reporting. Justify a purchase recommendation based upon a capital budget. Competency 6: Communicate in a manner that is consistent with the expectations of a business professional. Communicate effectively in written documents that follow APA format, and consistently using the grammar, punctuation, and mechanics expected of a business professional. Competency Map Check Your ProgressUse this online tool to track your performance and progress through your course. Context Capital budgeting techniques allow managers to prioritize resources and make decisions about long term projects and investments. The challenge with these techniques is in producing quality numbers through careful data analysis with limited resources. As you probably know, creating realistic estimates is always an important goal. However, this goal becomes even more challenging when you are using longterm estimates for decision making. Capital Budgeting Techniques There are specific capital budgeting techniques, such as net present value and internal rate of return that use time value of money when calculating investment decisions. Obviously, forecasting the return on a longterm project is based on a number of variables so evaluating a capital project should include a risk analysis. Payback Payback measures how long it will take a company to recover the initial investment. The longer the payback, the more risk the investment has. When using any of these techniques, it is often a good idea to create multiple scenarios and examine the data analysis results of each scenario. Doing so allows management to choose the most realistic outcome and use those numbers for the budgets. https://courserooma.capella.edu/webapps/blackboard/content/listContent.jsp?course_id=_34957_1&content_id=_3485297_1&mode=reset 1/3 6/16/2016 Assessment 6 - MBAFP6154 Spring 2016 Section 01 Questions to Consider To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community. How does the organization choose the hurdle rate in making capital budgeting decisions? What factors are used by the organization to determine the appropriate discount rate to use for a net present value analysis? What are the advantages of using net present value and internal rate of return methods to evaluate capita budgeting decisions instead of the payback period? Resources Suggested Resources The following optional resources are provided to support you in completing the assessment or to provide a helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left navigation menu of your courseroom. Course Library Guide A Capella University library guide has been created specifically for your use in this course. You are encouraged to refer to the resources in the MBAFP6154 - Budget Planning and Control Library Guide to help direct your research. Internet Resources Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication. Bookboon.com. (n.d.). Retrieved from http://bookboon.com/en/accountingebooks Principles of Accounting. (2015). Chapter 24: Analytics for managerial decision making. Retrieved from http://www.principlesofaccounting.com/chapter24/chapter24.html Bookstore Resources The resources listed below are relevant to the topics and assessments in this course and are not required. Unless noted otherwise, these materials are available for purchase from the Capella University Bookstore. When searching the bookstore, be sure to look for the Course ID with the specific -FP (FlexPath) course designation. Garrison, R. H., Noreen, E. W., & Brewer, P. (2015). Managerial accounting (15th ed.). New York, NY: McGraw Hill. Chapter 13, "Capital Budgeting Decisions." Assessment Instructions Use the background information presented below to calculate the payback period, accounting rate of return, internal rate of return, and net present value in a 3page analysis. Background Allgood Incorporated is considering purchasing a new machine to replace a current machine. The new machine will cost $390,000 and use working capital of $9,000. The current machine can be sold for $6,500. The new machine has a fiveyear useful life and no salvage value. The hurdle rate is 8%. If the new machine is purchased, the operating cash inflows are listed below: https://courserooma.capella.edu/webapps/blackboard/content/listContent.jsp?course_id=_34957_1&content_id=_3485297_1&mode=reset 2/3 6/16/2016 Assessment 6 - MBAFP6154 Spring 2016 Section 01 Year 1 - $130,000. Year 2 - $130,000. Year 3 - $130,000. Year 4 - $130,000. Year 5 - $130,000 (this includes the $9000 release of working capital). Complete the Following A: Calculate the following (ignore income taxes): 1. The payback period. 2. Accounting rate of return. 3. Internal rate of return. 4. Net present value. B: Assuming an income tax rate of 40%, calculate the net present value. Remember to calculate the after tax cash flows from operations and the tax savings from depreciation expense in your analysis. C: Should Allgood purchase the machine? Justify your position. Include a discussion of what qualitative factors you would consider. Additional Requirements Written communication: Written communication is free of errors that detract from the overall message. Show work for all calculations. APA formatting: Resources and citations adhere to APA style and formatting. Length of paper: 3 pages. Font: Times New Roman 12 point. Capital Projects Budgeting Scoring Guide View Scoring Guide Use the scoring guide to enhance your learning. How to use the scoring guide [U06a1] Capital Projects Budgeting Calculate the payback period, accounting rate of return, internal rate of return, and net present value in a 3 page analysis. Submit Assessment This button will take you to the next available assessment attempt tab, where you will be able to submit your assessment. U06a1:Capital Projects Budgeting >> View/Complete U06a1:Capital Projects Budgeting: Revision 1 >> View/Complete U06a1:Capital Projects Budgeting: Revision 2 >> View/Complete https://courserooma.capella.edu/webapps/blackboard/content/listContent.jsp?course_id=_34957_1&content_id=_3485297_1&mode=reset 3/3 Problem A Year Machine Expenditure Working Capital Annual Cash Inflow Sale of old machine Operating Cash Flows Cash Flow by Year Cumulative Cash Flow (390,000) (9,000) 1 2 130,000 130,000 (262,500) ### 130,000 (132,500) 6,500 (399,000) (392,500) 1 Payback Period Cumulative Cash Flows (392,500) (262,500) (132,500) Payback Period = 3.02 Years Years of full recovery + unrecovered cost at beginning of last year / cash flow in last year 3+(2,500/127,500) 2 Accounting Rate of return 33.12% 3 Internal rate of return 18.40% 4 Net Present Value 105,488 (4,300) 3 4 5 9,000 130,000 130,000 (2,500) ### 130,000 127,500 121,000 121,000 248,500 (2,500) 127,500 248,500 Problem B Year Cash Flows Working Capital Sale of old machine Cash Flows Less Depreciation Profits before tax Tax 40% PAT Add Depreciation Cash Inflow (390,000) (9,000) 6,500 Net Present Value (42,094) (392,500) 1 2 130,000 78,000 52,000 20,800 31,200 78,000 109,200 ### 78,000 52,000 20,800 31,200 78,000 109,200 3 4 5 9,000 130,000 78,000 52,000 20,800 31,200 78,000 109,200 ### 78,000 52,000 20,800 31,200 78,000 109,200 121,000 78,000 43,000 17,200 25,800 78,000 103,800 Should Allgood purchase the machine? Justify your position. Include a discussion of what qualitative factors you would consider