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 February 19, 2013.
Assignment 3 Grading Criteria
Calculated NPV correctly.
Calculated IRR correctly.
Calculated Profitability Index correctly.
Calculated Discounted Payback correctly.
Recommended and explained a logical decision.
Used Excel function tools properly.
Writing Craftsmanship, APA and Ethical Scholarship.
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