1. Review the "Capital Budgeting Process and Techniques" Mini-Case (pg. 278).
2. Answer question #5 only.

278 Part 3 Capital Budgeting Mini-Case Capital Budgeting Process and Techniques Contact Manufacturing, Inc. is considering two alternative 2. Calculate the net present value (NPV) of each project investment proposals. The first proposal calls for a major and based on this criteria, indicate which project you renovation of the company's manufacturing facility. The sec would recommend for acceptance. ond involves replacing just a few obsolete pieces of equip. 3. Calculate the internal rate of retum (IRR) of each project ment in the facility. The company will choose one projector and based on this criteria, indicate which project you the other this year, but it will not do both. The cash flows would recommend for acceptance. associated with each project appear below and the firm dis- counts project cash flows at 15% 4. Calculate the profitability index (P) of each project and based on this criteria, indicate which project you would recommend for acceptance. Year Renovate Replace 5. Overall, you should find conflicting recommendations 0 $9.000.000 --$2.400.000 based on the various criteria Why is this occurring! 3.000.000 2.000.000 2 3.000.000 800.000 6. Chart the NPV profiles of these projects. Label the 3 3.000.000 200.000 intersection points on the x and y-acis and the 4 3.000.000 200.000 crossover point 5 3.000.000 200.000 7. Based on this NPV profile analysis and assuming the WACC is 15%, which project would you recommend Assignment for acceptance? Why? 1. Calculate the payback period of each project, and based 8. Based on this NPV profile analysis and assuming the on this criteria indicate which project you would rec WACC is 25%, which project would you recommend ommend for acceptance for acceptance? Why? 9. Discuss the important elements to consider when deciding between these two projects