Capital Budgeting Decision Models

Resources: Microsoft® Excel®, Capital Budgeting Decision Models Template 

Calculate the following problems using Microsoft® Excel®:

• Calculate the NPV for each project and determine which project should be accepted.

    Project A Project B Project C Project D   Inital Outlay (105,000.000) (99,000.00) (110,000.00) (85,000.00)   Inflow year 1 53,000.00 51,000.00 25,000.00 45,000.00   Inflow year 2 50,000.00 47,000.00 55,000.00 50,000.00   Inflow year 3 48,000.00 41,000.00 15,000.00 30,000.00   Inflow year 4 30,000.00 52,000.00 21,000.00 62,000.00   Inflow year 5 35,000.00 40,000.00 35,000.00 68,000.00   Rate 7% 10% 13% 18%    

• Your company is considering three independent projects. Given the following cash flow information, calculate the payback period for each. If your company requires a three-year payback before an investment can be accepted, which project(s) would be accepted?

    Project D Project E Project F   Cost 205,000.00 179,000.00 110,000.00   Inflow year 1 53,000.00 51,000.00 25,000.00   Inflow year 2 50,000.00 87,000.00 55,000.00   Inflow year 3 48,000.00 41,000.00 21,000.00   Inflow year 4 30,000.00 52,000.00 9,000.00   Inflow year 5 24,000.00 40,000.00 35,000.00    

• Using market value and book value (separately), find the adjusted WACC, using 30% tax rate.

  Component Balance Sheet Value Market Value Cost of Capital   Debt 5,000,000.00 6,850,000.00 8%   Preferred Stock 4,000,000.00 2,200,00.00 10%   Common Stock 2,000,000.00 5,600,000.00 13%