FIN 301 Salem State University ABC Corporation Capital Budgeting Memo

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ebiva

Business Finance

FIN 301

Winston-Salem State University

FIN

Description

Need to write and analyse capital budgeting.
calculating IRR , PI and NPV
Writing a memo

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FIN 301 - Capital Budgeting Assignment EXCEL PART: Submission format: Excel File ABC Corporation has a machine that requires repairs or should be replaced. ABC has evaluated the two options and calculated the cash flows resulting from each option as follows: Option A: Repair the Machine Year Cash Flow 0 $70.500,00 1 $18.500,00 2 $35.100,00 3 $18.500,00 4 $17.800,00 5 $12.700,00 Option B: Buy a new Machine Year Cash Flow 0 $375.500,00 1 $55.300,00 2 $133.000,00 3 $123.800,00 4 $128.900,00 5 $124.100,00 - Capital Budgeting Assignment WRITING PART: Submission format: Word Document You have recently been hired by ABC corporation and your first assignment is to help them decide which of these two options should be pursued. You would like to apply the capital budgeting and Time Value of Money concepts you have learnt in FIN 301 to analyze the solution and present it to your boss in three days. Conduct the analysis and calculate Payback period for each option, IRR of each option and PI and NPV for each option at three WACC points of 10%, 12%, 14%, and 16% Write a memo to your boss, explaining the results of your analysis, your decision and include a table and a chart showing your analysis. Note: WACC is the discount rate
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Explanation & Answer

Attached.

Running Head: MEMO

1

MEMO

Student’s name
Institution

MEMO

2

MEMORANDUM
TO: Manager ABC corporation
FROM: Financial Analyst
DATE: 19/4/2020
SUBJECT: Capital budgeting
According to the analysis conducted it would be advisable for the ABC Corporation to accept option A
which is repairing the machine with a weighted average cost of capital at 10% since it has the highest
NPV, PI, IRR and least payback period. The tables below show the profitability of both projects at 10%,
12%, 14%, and 16%discounting rates.
Payback period
Option A: Repair the machine
Year
Cash flow
0
$70500
1
$18500
2
$35100
3
$18500
4
$17,800
5
$12,700
Payback period =2+ ($16900/$18500) =2.9 years

Cumulative cash ...


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