draft of the Capital Budgeting Data section of the final project

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For this milestone, submit a draft of the Capital Budgeting Data section of the final project, along with your supporting explanations. Base your calculations on the data provided in this case study. Be sure to substantiate your claims.

Attach please find the rubric and excel sheet (already completed).


https://www.sec.gov/Archives/edgar/data/354950/000...

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FIN 550 Milestone Three Guidelines and Rubric Overview: For the final project, you will use this case study to prepare a financial analysis report for Home Depot Inc. You will include in your analysis the background calculations and managerial analysis for each of the following topics: time value of money, stock and bond valuation, and capital budgeting. You will also discuss macroeconomic variables that might impact the company’s financial decision making and strategic objectives. These topics will be covered over four milestones to be submitted throughout the course before you submit the final project. Note that while these elements may seem separate and unrelated, together they will present a well-rounded view of the company’s finances with regard to the topics. In this milestone, you will submit a draft of the Capital Budgeting Data section of the final project, along with your supporting explanations. Prompt: Provide your recommendation on a potential investment project for Home Depot Inc. based on the net present value (NPV) and internal rate of return (IRR). Compare these calculations for their use in evaluating a potential investment. Complete your calculations on the designated tab in the Final Project Student Workbook. Specifically, the following critical elements must be addressed: IV. Capital Budgeting Data A. Suppose the company is considering a potential investment project to add to its portfolio. Calculate the following items: 1. The net present value (NPV) of the project 2. The internal rate of return (IRR) of the project B. What are the implications of these calculations? In other words, based on each of the calculations, and being mindful of the need to balance portfolio risk with return, would you recommend that the company pursue the investment? Why or why not? Be sure to substantiate your claims. C. What is the difference between NPV and IRR? Which one would you choose for evaluating a potential investment and why? Be sure to support your reasoning with evidence. Guidelines for Submission: Your paper must be submitted as a 2- to 3-page Microsoft Word document, not including your calculations, which should be completed on the designated tab in the Final Project Student Workbook. Use double spacing, 12-point Times New Roman font, and one-inch margins. Sources should be formatted according to APA style. Rubric Critical Elements Capital Budgeting Data: Potential Investment Capital Budgeting Data: Pursuing the Investment Capital Budgeting Data: Difference Articulation of Response Proficient (100%) Accurately calculates requested figures Needs Improvement (80%) Calculates figures, but with gaps in accuracy or detail Analyzes the implications of each Analyzes the implications of each calculation on the recommendation to calculation on the recommendation to pursue the investment, substantiating pursue the investment, but response or claims substantiation is cursory or illogical Accurately characterizes the difference Characterizes the difference between between NPV and IRR and explains which NPV and IRR and explains which would would be chosen for evaluating a be chosen for evaluating a potential potential investment and why, investment and why, but response is supporting reasoning with evidence cursory or inaccurate or evidence is not supportive Submission has no major errors related Submission has major errors related to to citations, grammar, spelling, syntax, or citations, grammar, spelling, syntax, or organization organization that negatively impact readability and articulation of main ideas Not Evident (0%) Does not calculate figures Value 30 Does not analyze the implications of each calculation on the recommendation to pursue the investment 30 Does not characterize the difference between NPV and IRR and does not explain which would be chosen for evaluating a potential investment and why 30 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas Earned Total 10 100% SUMMARY TAB TAB 1 Note: This process could take up t 1. Time Value of Money FALSE TAB 2 FALSE FALSE FALSE PART I - Stock Valuation FALSE FALSE FALSE PART II - Bond Issuance Current Bond Value FALSE $9.433,58 New Value +5% FALSE FALSE 5,4375 $24.634,04 New Value - 5% FALSE FALSE 0,4375 $3.528,32 ote: This process could take up to 20 seconds TAB 3 Capital Budgeting FALSE FALSE FALSE TAB 4 Interest Rate Implication FALSE FALSE $9.785.570,71 50% Milestone Three: Capital Budgeting Data (please fill in the shaded YELLOW cells) Initial Outlay ($65.000.000) Cash Flows (Sales) - Operating Costs (excluding Depreciation) - Depreciation Rate of 20% Operating Income (EBIT) - Income Tax (Rate 35%) After-Tax EBIT + Depreciation Cash Flows ($65.000.000) CF1 CF2 $50.000.000 $25.500.000 (13.000.000) 37.500.000 13.125.000 24.375.000 13.000.000 37.375.000 $45.000.000 $25.500.000 (13.000.000) 32.500.000 11.375.000 21.125.000 13.000.000 34.125.000 NPV Select from drop downs below: $9.785.570,71 ACCEPT IRR 50% ACCEPT WACC 8% CF3 $65.500.000 $25.500.000 (13.000.000) 53.000.000 18.550.000 34.450.000 13.000.000 47.450.000 CF4 $55.000.000 $25.500.000 (13.000.000) 42.500.000 14.875.000 27.625.000 13.000.000 40.625.000 CF5 $25.000.000 $25.500.000 (13.000.000) 12.500.000 4.375.000 8.125.000 13.000.000 21.125.000 Capital Budgeting Example Set-up Initial investment $65,000,000 Straight-line Depreciation of 20% Income Tax @35% WACC of 8% approximately. (HD WACC was abou Cash Flow (which in this case are Sales Revenues CF1: $50,000,000 CF2: $45,000,000 CF3: $65,500,000 CF4: $55,000,00 CF5: $25,000,000 Operating Costs CF1: $25,500,000 CF2: $25,500,000 CF3: $25,500,000 CF4: $25,500,000 CF5: $25,500,000 WACC- why do we use WACC rate for new proje doesn’t earn more percent than WACC, the corp abandon the project and invest money elsewher Initial Investment - always negative. Corporation money ("lose" it till they recover it via sales) in o benefit. ng Example Set-up nt $65,000,000 preciation of 20% ACCEPT REJECT proximately. (HD WACC was about 8.83%) h in this case are Sales Revenues) are as follows: we use WACC rate for new projects? If the project ore percent than WACC, the corporation should oject and invest money elsewhere. nt - always negative. Corporation has to invest t till they recover it via sales) in order to gain future
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Running Head: Home Depot Capital Budgeting

Home Depot Capital Budgeting
Name
Instructor
Institutional Affiliation
Date

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Home Depot Capital Budgeting
The Net present value (NPV) of potential investment project

The net present value is a capital budgeting technique which works by discounting
projected cash flows and adding them up together. The decision rule is to accept those projects
which lead to positive net present value. The reason is that it adds value to the wealth of the
company; reject projects with negative net present value because it “eats” or reduces the value of
the company and either accept or reject a project with zero net present value since it is neither
adding value nor reducing the value of the company. In the calculations, the net present value of
the potential investment is $13,291,616.74.
The internal rate of return (IRR) of the project
The internal rate of return metric in capital budgeting estimates the profitability of
potential investment projects. The internal rate of return is a rate that discounts to make the net
present value of zero. Also, the IRR calculations rely on similar formula as the net present value.
The project�...


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