1. Using the template provided, analyze the project with Net Present Value, Internal Rate of Return, Payback Period, and Modified Payback Period.
2. Repeat the NPV, IRR, Payback, and Modified Payback analyses for high and low confidence estimates of the project's net annual positive cash flows.

Josephine Joline Jones, Chief Financial Office of Jo Jo's Circus has been investigating opportunities to expand her operations.

Project: Expand concessions and gift shops

• Requires the purchase and customization of portable facilities and equipment, estimated to cost $772,500 upfront.
• In addition, again due to the seasonal and transitional nature of the circus industry, Jo Jo estimates that she will need to dedicate working capital of $10,500 at the beginning of the project. The $10,500 working capital will become available once the project's life is over.
• Jo Jo expects the project to yield positive net annual cash flows over the project's expected 6-year life as follows:
• End of 1st Year: $281,300, End of 2nd Year: $259,000, End of 3rd Year: $236,300, End of 3rd Year: $236,300, End of 4th Year: $202,500, End of 5th Year: $157,500,

End of 6th Year: $112,500

• Given Jo Jo's management team's experience with concessions and gift sales, Jo Jo feels confident that the net annual cash flows will be between 90% and 110% of the above estimates.
• Jo Jo expects to scrap the concession and gift shop facilities and equipment at the end of the 6 years for $8,000.

Jo Jo's investors require 15% return on their invested cash each year. The circus has managed to secure a tax haven such that they do not expect to pay any income taxes over the foreseeable future.

Capital Budgeting Case Template Cash Flow Information Initial Investment Working Capital Salvage Value Expected Project Life (Years) Year #1 Year #2 Year #3 Year #4 Year #5 Year #6 Net annual operating cash flows Investors Cost of Capital (Required Return) Today End of Year End of Year End of Year End of Year End of Year End of Year 0 6 Confidence Initial Investment Net annual operating cash flows Working Capital Salvage value of equipment Total Net Cash Flows x present value discount factor Present Value of Cash Flows Net Present Value Recommendation? Low Confidence Net Present Value Recommendation? High Confidence Net Present Value Recommendation? Part 2 - Calculate the Internal Rate of Return of the Capital Investment: Intemal Rate of Retum Recommendation? Low Confidence Intemal Rate of Retum Recommendation? High Confidence Intemal Rate of Retum Recommendation? Part 3 - Calculate the Payback Period of the Capital Investment: Today End of Year End of Year End of Year End of Year End of Year End of Year Payback Method 0 5 6 Cumulative Cash Flows Payback Year years Low Confidence Payback Year years High Confidence Payback Year years Part 4 - Calculate the Modified Payback Period of the Capital Investment: End of Year End of Year End of Year End of Year End of Year End of Year Modified Payback Method Today Cumulative Cash Flows Modified Payback Year years Modified Low Confidence Payback Year years Modified High Confidence Payback Year years