Answer Happy

Capital Budgeting Decisions Instructor: FINC 3310 - SPRING 2022 Learning Objectives 1. Understand how to use EXCEL Spreadsheet (a) Develop proforma Income Statement Using Excel Spreadsheet (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem-solving and critical thinking skills and make long-term investment decisions 1) Life Period of the Equipment = 4 years 8) Sales for first year (1) $ 2) New equipment cost $(200,000) 9) Sales increase per year 3) Equipment ship & install cost $ (35,000) 10) Operating cost (60% of Sales) $ 4) Related start up cost $ (5,000) (as a percent of sales in Year 1). 5) Inventory increase $ 25,000 11) Depreciation (Straight Line)/YR $ 6) Accounts Payable increase $ 5,000 12) Marginal Corporate Tax Rate (T) 7) Equip. salvage value before tax $ 15,000 13) Cost of Capital (Discount Rate) 200,000 5% (120,000) -60% (60,000) 21% 10% ESTIMATING Initial Outlay (Cash Flow, CFO, T= 0)
CF2 CFO 0 CF1 1 CF3 3 CF4 4 IN Year Investments: 1) Equipment cost 2) Shipping and Install cost 3) Start up expenses Total Basis Cost (1+2+3) 4) Net Working Capital Total Initial Outlay Operations: Revenue Operating Cost Depreciation EBIT Taxes Net Income