KGSM Finance Best Buy Capital Budgeting Analysis Presentation

User Generated

zbqnqql68

Economics

Keller Graduate School of Management

Description

Best Buy is the company for this project. You have recently assumed the role of CFO at your company. The company's CEO is looking to expand its operations by investing in new property, plant, and equipment. You are asked to do some capital budgeting analysis that will determine whether the company should invest in these new plant assets.The parameters for the week 7 project deliverable are as follows.

  • The firm is looking to expand its operations by 10% of the firm's net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm's balance sheet.)
  • The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment's cost.
  • The annual EBIT for this new project will be 18% of the project's cost.
  • The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. Use 35% as the tax rate in this project.
  • The hurdle rate for this project will be the WACC that you are able to find on a financial website, such as Gurufocus.com. If you are unable to find the WACC for a company, contact your instructor. He or she will assign you a WACC rate.Prepare a narrated PowerPoint presentation that will highlight the following items.
    • Your calculations for the amount of property, plant, and equipment and the annual depreciation for the project
    • Your calculations that convert the project's EBIT to free cash flow for the 12 years of the project.
    • The following capital budgeting results for the project
      • Net present value
      • Internal rate of return
      • Discounted payback period.
    • Your discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project

User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

View attached explanation and answer. Let me know if you have any questions.

Best Buy
Capital Budgeting
Analysis
ASSIGNMENT PRESENTATION
NAME

Calculations for Property, Plant &
Equipment and Its Depreciation
Net Property and Equipment in 2021 = $2,260 Million

Investment as 10% of PP&E = $226 Million
Useful Life = 12 Years

Salvage Value (5% of Cost) = $11.30 Million
Annual Depreciation = (Cost – Salvage Value) / Useful Life
Annual Depreciation = (226 – 11.3) / 12
Annual Depreciation = $17.89 Million

Calculations to Convert EBIT to Free
Cash Flows:
Amounts in Million $
Years
Initial Investment (10%
of PP&E)

0

1

2

3

4

5

6

7

8

9

10

11

12

(226)

Salvage Value (5% of
Initial Cost)

11.30

Annual EBIT (18% of
Cost)

40.68 40.68 40.68 40.68 40.68 40.68 40.68 40.68 40.68 40.68 40.68 40.68

Less Taxation (35% of
EBIT)

(14.24) (14.24) (14.24) (14.24) (14.24) (14.24) (14.24...


Anonymous
I use Studypool every time I need help studying, and it never disappoints.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Similar Content

Related Tags