The purpose of this assignment is to allow the students to become familiar with and practice the measurement of Net Present Value (NPV), payback, and Weighted Average Cost of Capital (WACC) using Micr

The purpose of this assignment is to allow the students to become familiar with and practice the measurement of Net Present Value (NPV), payback, and Weighted Average Cost of Capital (WACC) using Microsoft® Excel®.

Assignment Steps

Use the attached 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%

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Assignment Solutions
Assignment Solutions