M1A3

Assignment 3: Analyzing Capital Expenditures

Assume that you have received a capital expenditure request for $52,000 for plant equipment and that you are required to do a justification analysis using capital budgeting techniques.  The company’s cost of capital is 12% and the equipment (investment) is expected to generate net cash inflows of $13,000 per year for 8 years and then $9,000 for one year.

You are to calculate and explain your quantitative calculations of each of the four capital-budgeting techniques listed, then, based upon these calculations, write a summary that provides a justification to proceed or not proceed with the project.

* Calculate the project’s net present value (NPV).

* Calculate the project’s internal rate of return (IRR).

* Calculate the project’s profitability index.  

* Calculate the project’s discounted payback period.  

* Recommend whether the project should be accepted or rejected and explain why.

To complete this assignment, submit an Excel file with your time value calculations, and a two-page paper that explains the calculations and provides your recommended decision and explanation of why that decision is recommended.   The paper must be submitted as a Word document and it must follow APA style guidelines.

By the due date assigned, deliver your assignment to the Submissions Area.

Assignment 3 Grading Criteria 

Maximum Points

Calculated NPV correctly. 16

Calculated IRR correctly. 16

Calculated Profitability Index correctly. 12

Calculated Discounted Payback correctly. 12

Recommended and explained a logical decision. 16

Used Excel function tools properly. 16

Writing Craftsmanship, APA and Ethical Scholarship. 12

Total: 100