Excel Computation for Capital Budgeting

2. Use the projections provided in the case to compute the incremental cash flows for the PCB project. Provide a reasonable estimate for cash flows after 2009 as well.

The NPV of this project is negative and the IRR is lower then the Cost of Capital (12%)

Project C: This project will be a scale-up of a project done last year. All the same processes will be used. The costs for the material and other resources should be scalable based on last year’s costs.

General Foods is a large corporation organized by product lines. They are evaluating Super Project, the manufacture of a new powdered dessert. Crosby Sanberg, a financial analysis manager, must determine the value in accepting the proposal, along with J.C. Kresslin, the Corporate Controller. The Super Project will increase profit with a payback period of less than ten years. The proposed capital investment for the project is $200,000 ($80,000 for building modifications and $120,000 for machinery and equipment) and production would take place

You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is $3,000,000.

In real live project with more cash flow after the pay back period would be more valuable than Project with no cash flow, yet its payback and discounted payback make it look worse. This is the reason, the shorter the payback period, other things held constant, the greater the project’s liquidity. Apart from this, since cash flows expected in the distant future are generally riskier than near-term cash flows, the payback is often used as an indicator of a project’s riskiness because the longer the payback period the higher is the risk associated with the project (Brigham, 2004) (Fabuzzi, 2003).

The purpose of this analysis is to compare and contrast two projects in terms of Project Management, Quantitative Analysis and Economics while illustrating the

If the discount rate were 6 percent calculate the NPV of the project. Is this an

The following observation will describe the decisions made by a financial analyst who is working for the capital budget department at Caledonia Products. The organization has asked Team B to evaluate the potential risk involved in an upcoming transaction and identify several options in how to proceed. Because this is the team’s first assignments dealing with risk analyzes the team has been ask to further explain the details. The organization analysis will focus on free cash flows, projection of cash flows, projects initial outlay, cash flow diagram, net present value, internal rate of return, and if the

These large sums of cash outflow are spread out over long periods of time. Therefore, the present value of cash flow signifies the economic worth of a project for a company at a specific point in time. This, in turn, helps decision makers ascertain the time period that the company’s investments will be tied up. Also, it helps them establish the amount of time that it will take to begin receiving a return. Furthermore, decision-makers can better evaluate which projects have a higher chance of providing them with a return sooner since present value discounts future cash flows to their equivalent value today. Additionally, it aids them in establishing which projects should be invested in and those that should not. Moreover, it allows them to ascertain if and when a project will benefit them so they can evaluate their investment options and select the best alternative (Edmonds et al.,

b) In the second table below calculate the Net Present Value (NPV) of the project.

You seem to recall that Dynamic’s Finance organization recommends either a 10% or a 15% discount rate for all Cost Savings Projects. You are fairly sure it is 10%.

1. How will discount rates of 8, 10, 12, 14, and 16 percent affect the project’s feasibility?

-The project’s NPV is $881,229. NPV is the present value of the annual free cash flows of the investment minus the initial investment cost. This means that we take all the future cash flows from an investment, discount them back to their present value today and subtract the initial cost. This will then be telling you what your future money is worth today.

This project represents the largest expansion HPL has conducted in more than a decade. The company’s historical capital budgeting projects model may not accurately portray the amount of risk, and consequently, the appropriate discount rate to assign. HPL could hire an outside consulting firm that has experience with assessing appropriate discount rates that are relative to the magnitude of the expansion project.