Preston Plastics is about to wrap up its capital budgeting cycle, and department managers across the company have submitted 500 capital project requests for consideration
Preston Plastics is about to wrap up its capital budgeting cycle, and department managers across the company have submitted 500 capital project requests for consideration in the next round of funding. Prestons CFO, Dan LaMontagne, is trying to decide which projects to recommend for funding to the capital projects executive committee. He has gathered all the information about each projects estimated life, initial investment, and cash flows in an Excel spreadsheet and is ready to make his decisions. Preston requires all capital projects to have a payback period of 5 years or less and uses a 12% discount rate.
a.) Which of the three metrics do you recommend that Preston use to allocate the $2 billion to fund the capital projects? Why?
b.)Dan has just learned that projects 16808 and 17011 are required to meet new regulatory requirements, and therefore must be funded regardless of the metrics. How will this information change your funding recommendations?
View the Excel data files for answering this problem in the screenshots below (FOR CLEARER IMAGE, DOWNLOAD THE IMAGE)
Project # Life Initial Investment Year 1 4 (71000) S 168.740 168,740 168,740 168,740 37,035,000) 3,063,357 $ 3,06),357 3,063,357 3 $ 3,662,000) $ 1,589,038 1,589,038 1,589,038 348,000) 46,716 146,716 146,716 (468,000) 195,774 195,774 195,774 195,774 195,774 195.774 5 195,774 195,774 195,774 195,774 6,844,000) 2,805,01 2,805,031 2,805,031 5,949,00)2,289,309 $2,289,09 2,289,09 2,9,3092,29,309 2,706,000) $ 1,035,325 $ 1,035,325 $ 1,035,325 $ 1,035,325 $ 1,035,325 $ 1,035325 $ 1,035,325 6 S05,000)210,574210,574 210,574 210,574 210,574 210,574 7$ [1,749,000) $ 692.547 $ 692,547 $ 692,547S 692,547 $ 692,547 $ 692.547 $ 692.547 17057 101,264,000)86,26 486,265 486,265 486,265 186,265 186,265 486,265 486,265 486,265 486,265 7 $ (748.000) 285406285406 285A06 285406 28540285,406 285406 285406 2B5406 285,40285,406 15 $ 3,231,000) 1,225,175 1,225,175 1,225,175 1,225,175 1,225,175 1,225,175 1,225,175$ 1,225,175 1,225,175 $ 1,225,175 1,225,175 1,225,175 1,225,17S 1,225,175 1,225,175 314,711,000)5,307,1925 5,307,192 5,307,192 5$ [771,000) $ 276.929 $ 276,929 $ 276,929 S 276,929 $ 276,929 11 $ ,326,000) 1,193,663 1,19,6631,1,663$ 1,193,66 193,6 1,193,61,193,663 $ 1,193,663 1,193,6631,193,66$ 1,193,663 1/18812 S 1376,000) 493,526 3,526 43,526 493,526 493,526 S 493,526 493,526 493,526493,526493,52 493,525 493,526 3 $(1,627,000) $582,843 5 582,843 582,843 1,556,055 $ 1,556,055 4,171,000) 1556055 1,556,055 1,556,055 16998 12 6,05000) 2,148,613 S 2,148,63 2.118,643 2,148,64 2148,613 $2,148,613 S 2,148,613 2,148,643 2,148,643 2,148,643 2,148,613 $ 2,148,613 21,566,000) 7,609,578 7,609,578 7,609,578 56,971000) 2457,925 $ 2,457,925 2,457,925 2457,925 2457,925 9 4,119,000) 1,444,830 1,444,830 $ 1,444,830 $ 1444,830 1444,830$ 1A44,830 1444,830 1,444830 1,444,830 17037 15(6,066,00) 2,127,676 2,127,676 2,127,6762,127,676 2,127,675 2,127,675 2,127,676 2,127,876 2,127,676 $ 2127,67 2,127,675 2127,676 2127,6762127,876 2,127,676 4 $6,431,000) 2,248.43 2,24B433 2,243,433 2,248,433 03,37,001,176,20 1,176,290 1,176,290 1,176,290 1,17901,17620 1,17620 1,176,290 1,176,290 1,17629!0 1/192 14 (,655,000) 2,65,3 2,659,309 2,659,30 S 2,659,309 2,659,309 2,659,309 2,659,309 2,659,30 2,659,30 2,659,3092,659,302,659,3 2,659,309 2,659,309 10-s-(10,091,000) s-3,504.469 15 $ $ 3,504469 S 3,504,469 $ 3.504,469 $ 3,504,469 $ 3,504.469 $ 3,504.469 $3,504,469+$-3,504,469. s-3.504,465 16869 B 586,000 $ 2,976,008 $ 2,976,008 s 2.976,008 $ 2.976,008 $ 2.976,008 $ 2,976,008 $ 2,976 8 $ 2,976,008 s 2.976,008 $ 2.97,008 $ 2,976,008 S 2,976.008 $ 2,976,008 $ 2,976,008 S 2.976,008 1000) 2,67 77,878 $ 2677878 267878 $ 2,677, 8782,677,878 2,6788 2,677,878 3 11,214,000) 3,877.500 3,877,500 3,877,500 5,128,000 $ 1,772.893 $ 1.772,893 s 1,772293 $ 1.772,393 $ 1,772.893 $ 1,772.853 S 1772 893 S 1.772 gas s 1772,393 s 1,772,893 s 1772.393 s 1.772.8935 1.772.B93 S 1.7 72S93 S .772393 14 $ (10,055,000) 3,47,3,475,102 3,475,102 3,475,102 $3,475, 3,475,102 3,475,102 3,475,102 3,475,102 3,475,102 3,475,102 3,475, 3,475,102 3,475,102 12 4,242,000) 1,465,201 1,465,201 1,465,201 1,465,201 $ 1,465,201 1,465,201 1,465,201 1,465,201 1,465,201 1,455,201 1465,201 1,465,201 Project # Life Initial Investment Year 1 4 (71000) S 168.740 168,740 168,740 168,740 37,035,000) 3,063,357 $ 3,06),357 3,063,357 3 $ 3,662,000) $ 1,589,038 1,589,038 1,589,038 348,000) 46,716 146,716 146,716 (468,000) 195,774 195,774 195,774 195,774 195,774 195.774 5 195,774 195,774 195,774 195,774 6,844,000) 2,805,01 2,805,031 2,805,031 5,949,00)2,289,309 $2,289,09 2,289,09 2,9,3092,29,309 2,706,000) $ 1,035,325 $ 1,035,325 $ 1,035,325 $ 1,035,325 $ 1,035,325 $ 1,035325 $ 1,035,325 6 S05,000)210,574210,574 210,574 210,574 210,574 210,574 7$ [1,749,000) $ 692.547 $ 692,547 $ 692,547S 692,547 $ 692,547 $ 692.547 $ 692.547 17057 101,264,000)86,26 486,265 486,265 486,265 186,265 186,265 486,265 486,265 486,265 486,265 7 $ (748.000) 285406285406 285A06 285406 28540285,406 285406 285406 2B5406 285,40285,406 15 $ 3,231,000) 1,225,175 1,225,175 1,225,175 1,225,175 1,225,175 1,225,175 1,225,175$ 1,225,175 1,225,175 $ 1,225,175 1,225,175 1,225,175 1,225,17S 1,225,175 1,225,175 314,711,000)5,307,1925 5,307,192 5,307,192 5$ [771,000) $ 276.929 $ 276,929 $ 276,929 S 276,929 $ 276,929 11 $ ,326,000) 1,193,663 1,19,6631,1,663$ 1,193,66 193,6 1,193,61,193,663 $ 1,193,663 1,193,6631,193,66$ 1,193,663 1/18812 S 1376,000) 493,526 3,526 43,526 493,526 493,526 S 493,526 493,526 493,526493,526493,52 493,525 493,526 3 $(1,627,000) $582,843 5 582,843 582,843 1,556,055 $ 1,556,055 4,171,000) 1556055 1,556,055 1,556,055 16998 12 6,05000) 2,148,613 S 2,148,63 2.118,643 2,148,64 2148,613 $2,148,613 S 2,148,613 2,148,643 2,148,643 2,148,643 2,148,613 $ 2,148,613 21,566,000) 7,609,578 7,609,578 7,609,578 56,971000) 2457,925 $ 2,457,925 2,457,925 2457,925 2457,925 9 4,119,000) 1,444,830 1,444,830 $ 1,444,830 $ 1444,830 1444,830$ 1A44,830 1444,830 1,444830 1,444,830 17037 15(6,066,00) 2,127,676 2,127,676 2,127,6762,127,676 2,127,675 2,127,675 2,127,676 2,127,876 2,127,676 $ 2127,67 2,127,675 2127,676 2127,6762127,876 2,127,676 4 $6,431,000) 2,248.43 2,24B433 2,243,433 2,248,433 03,37,001,176,20 1,176,290 1,176,290 1,176,290 1,17901,17620 1,17620 1,176,290 1,176,290 1,17629!0 1/192 14 (,655,000) 2,65,3 2,659,309 2,659,30 S 2,659,309 2,659,309 2,659,309 2,659,309 2,659,30 2,659,30 2,659,3092,659,302,659,3 2,659,309 2,659,309 10-s-(10,091,000) s-3,504.469 15 $ $ 3,504469 S 3,504,469 $ 3.504,469 $ 3,504,469 $ 3,504.469 $ 3,504.469 $3,504,469+$-3,504,469. s-3.504,465 16869 B 586,000 $ 2,976,008 $ 2,976,008 s 2.976,008 $ 2.976,008 $ 2.976,008 $ 2,976,008 $ 2,976 8 $ 2,976,008 s 2.976,008 $ 2.97,008 $ 2,976,008 S 2,976.008 $ 2,976,008 $ 2,976,008 S 2.976,008 1000) 2,67 77,878 $ 2677878 267878 $ 2,677, 8782,677,878 2,6788 2,677,878 3 11,214,000) 3,877.500 3,877,500 3,877,500 5,128,000 $ 1,772.893 $ 1.772,893 s 1,772293 $ 1.772,393 $ 1,772.893 $ 1,772.853 S 1772 893 S 1.772 gas s 1772,393 s 1,772,893 s 1772.393 s 1.772.8935 1.772.B93 S 1.7 72S93 S .772393 14 $ (10,055,000) 3,47,3,475,102 3,475,102 3,475,102 $3,475, 3,475,102 3,475,102 3,475,102 3,475,102 3,475,102 3,475,102 3,475, 3,475,102 3,475,102 12 4,242,000) 1,465,201 1,465,201 1,465,201 1,465,201 $ 1,465,201 1,465,201 1,465,201 1,465,201 1,465,201 1,455,201 1465,201 1,465,201
