# Capital Budgeting Decision Models

*label*Business Finance

*timer*Asked: Mar 4th, 2018

*account_balance_wallet*$20

**Question description**

**Purpose of Assignment**** **

The purpose of this assignment is to allow the students to become familiar with and practice the measurement of Net Present Value (NPV), payback, and Weighted Average Cost of Capital (WACC) using Microsoft^{®} Excel^{®}.** **

**Assignment Steps**** **

**Resources: **Microsoft^{®} Excel^{®}, Capital Budgeting Decision Models Template** **

**Calculate **the following problems using Microsoft^{®} Excel^{®}:

- Calculate the NPV for each project and determine which project should be accepted.

Project A | Project B | Project C | Project D | |

Inital Outlay | (105,000.000) | (99,000.00) | (110,000.00) | (85,000.00) |

Inflow year 1 | 53,000.00 | 51,000.00 | 25,000.00 | 45,000.00 |

Inflow year 2 | 50,000.00 | 47,000.00 | 55,000.00 | 50,000.00 |

Inflow year 3 | 48,000.00 | 41,000.00 | 15,000.00 | 30,000.00 |

Inflow year 4 | 30,000.00 | 52,000.00 | 21,000.00 | 62,000.00 |

Inflow year 5 | 35,000.00 | 40,000.00 | 35,000.00 | 68,000.00 |

Rate | 7% | 10% | 13% | 18% |

- Your company is considering three independent projects. Given the following cash flow information, calculate the payback period for each. If your company requires a three-year payback before an investment can be accepted, which project(s) would be accepted?

Project D | Project E | Project F | |

Cost | 205,000.00 | 179,000.00 | 110,000.00 |

Inflow year 1 | 53,000.00 | 51,000.00 | 25,000.00 |

Inflow year 2 | 50,000.00 | 87,000.00 | 55,000.00 |

Inflow year 3 | 48,000.00 | 41,000.00 | 21,000.00 |

Inflow year 4 | 30,000.00 | 52,000.00 | 9,000.00 |

Inflow year 5 | 24,000.00 | 40,000.00 | 35,000.00 |

- Using market value and book value (separately), find the adjusted WACC, using 30% tax rate.

Component | Balance Sheet Value | Market Value | Cost of Capital |

Debt | 5,000,000.00 | 6,850,000.00 | 8% |

Preferred Stock | 4,000,000.00 | 2,200,00.00 | 10% |

Common Stock | 2,000,000.00 | 5,600,000.00 | 13% |

## Tutor Answer

Here is the answer. Thank you

Instructions

1. You have three problems - one on each tab of this Excel file.

2. Please show your work in the cells. Use Excel formulas instead of writing the values/answers directly in the cell.

The instructor will then know where you made a mistake and provide you valuable feedback and partial credit (if

3. It is recommended to watch the assigned videos in week # 4.

Total Points: 10

e feedback and partial credit (if appropriate).

Calculate the NPV for each project and determine which project should be accepted.

Initial Outlay

Inflow year 1

Inflow year 2

Inflow year 3

Inflow ...

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