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