You are the financial manager of Acme Manufacturing Company, an automotive supply company located in Elkhart, Indiana. The President/CEO of the company has asked you to evaluate three capital investment projects that the company is considering pursuing during the upcoming year. Details on the projects are presented below:

Project 1 Install new manufacturing line Initial cost: $2,500,000 Term of project: 6 years Project Net Cash flows: Year 1 = $500,000, Years 2 through 5 = $700,000/yr, and Year 6 = $6,000,000 (including salvage proceeds)

Project 2 Acquire Wile E. Coyote Enterprises Initial cost: $5,000,000 Hold Period: 6 years (that is, Acme intends to hold Coyote Enterprises for 6 years after which, it will sell off this acquired company) Sale of the company at the end of year 6 and operational cash flows during year 6 are projected to generate $6,000,000 total net of any disposition costs Coyote Enterprises Projected Operating Net Cash flows for the other years are: Year 1 = $800,000, Year 2 = $700,000, Year 3 = $700,000, Year 4 = $700,000, and year 5 = $500,000

Project 3 Acquire Fudd Company Initial cost: $4,000,000 Hold Period: 6 years (after which Fudd company will be sold) Sale of the company at the end of year 6 and operational cash flows during year 6 are projected to generate $10,000,000 total net of any disposition costs Fudd Company Projected Operating Net Cash flows for the other years are: Year 1 = $2,000,000, Year 2 = $3,000,000, Year 3 = ($700,000) (a loss for the year), Year 4 = $4,000,000, and year 5 = $2,000,000

The company has up to $10,000,000 to spend on capital projects, but is limited by human resources such that it can only select one project during the coming year. The weighted average cost of capital has already been determined to be 10%. Assume all cash flows are received at year end.

USING EXCEL - Perform the three primary capital budget evaluation methods (NPV, IRR, and MIRR) on the three projects above. For MIRR, assume the cost of capital is your reinvestment rate of return. From the results, identify for your boss which of the three projects should be pursued. Give a brief explanation to your boss on why you selected the project you did. Again, be sure to use Excel to make your calculations and be sure to provide a formula sheet for all of your Excel calculations (although you are certainly welcome to confirm your answers using your hand-held calculators. The formula sheet should be printed so that the row and column headings are shown.