Objectives: Introduce the basic concepts of capital budgeting, including cash flow calculation and decision metrics. Determine the cash flows appropriate to consider for a potential project. Forecast a project’s cash flows. Evaluate a project using payback period, net present value (NPV), and internal rate of return (IRR). Raise the issue of how to compare projects with unequal lives. Introduce different types of risk inherent in capital budgeting and how they are incorporated into the analysis. Questions: Should the following be included in Sneaker 2013’s capital budgeting cash flow projection? Why or why not? a.Building a factory and purchase/installation of the equipment b Research and development costs c. Cannibalization of other sneaker sales d. Interest costs e. Changes in current asset/current liabilities accounts f. Taxes g. Cost of goods sold h. Advertising and promotion expenses j. Depreciation charges Attach an Excel Spreadsheet with: Projected cash flows statement for each project. Payback, IRR, and NPV analysis. Does Persistence appear attractive from a quantitative standpoint? Which project do you think is more risky? How do you think you should incorporate differences in risk into your analysis? Which project looks better for New Balance shareholders? Why? Should Rodriguez be more or less critical of cash flow forecasts for Persistence than of cash flow forecasts for Sneaker 2013? Why? What is your final recommendation to Rodriguez?

In May, Zach agrees to work for Affordable Plumbing Supplies Company at $800 per week for a year beginning June 1. The following January, Budget Pipes & Fittings, Inc., offers Zach the same work at $900 per week. Zach tells Affordable Plumbing about the offer. Affordable Plumbing offers to enter into a new contract with Zach at $875 per week. If Zach agrees, is the new Affordable Plumbing contract enforce­able? Why or why not? 2.Raconteur Data Analysis Corporation in Seattle, Washington, offers a job to Trista, who lives in Utah. Trista orally agrees to work for Raconteur for two years. She moves her family to Seattle and begins work. Three months later, she is fired for no stated cause. She files a suit against Raconteur for rein­statement or pay. Raconteur pleads the lack of a written con­tract. In whose favor is the court likely to rule, and why? 3. Lunch Trucks, Inc., contracts to deliver and serve Meals Catering Service’s products to its clients for $5,000 per event, payable in ad­vance. Meals Catering pays the money, but Lunch Trucks fails to perform. Can Meals Catering rescind the contract? Can Meals Catering also ob­tain restitution? What does it mean to “rescind” a contract? How is a contract rescinded? What is restitution? How is restitution accom­plished? Explain. 4. On May 1, Newtown Motors, a used-car dealer, wrote a letter to O’Reilly, which stated, “We have a 1969 Pontiac Firebird in mint condition that we will sell you for $12,500 at any time before June 1. [Signed] Newtown Motors.” By May 15, having heard nothing from O’Reilly, Newtown Motors sold the Firebird to another party. On May 25, O’Reilly told Newtown Motors that he accepted the offer and tendered $12,500. When Newtown Motors told O’Reilly it had sold the car to another party, O’Reilly claimed Newtown Motors had breached their contract. Is Newtown Motors in breach? Explain. 5. Erin contracts in writing to sell her Ford-brand pick-up truck to Garth for $10,500. Erin agrees to deliver the truck on Friday, and Garth promises to pay the $10,500 on the following Monday. On Thursday, Garth tells Erin that he changed his mind and will not buy the truck. Over the weekend, Garth changes his mind again and tenders $10,500 to Erin on Monday. Erin has not sold the truck to another party but refuses the tender and refuses to deliver. Garth claims that Erin has breached their contract. Erin contends that Garth’s repudiation released her from her duty to perform under the contract. Who is correct, and why?I will upload the IRAC method.