Capital Budgeting Scenarios

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Proposal A is to build a new factory to decide if this would be a feasible move for the company they need to perform a net present value analysis. To do this they will only need to look at the incremental cash flows, which are as follows

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Capital Budgeting ScenariosCapital Budgeting ScenariosShannan ColemanFIN/486September 23, 2012Sal SadiqCapital Budgeting ScenariosCapital Budgeting: Proposal A New FactoryProposal A is to build a new factory to decide if this would be a feasible move for the company they need to perform a net present value analysis. To do this they will only need to look at the incremental cash flows, which are as follows: 1. Initial investment of $10 million that will be the cost to build the new factory. 2. Sales of $3 million a year that will result in an increase of $150,000 in gross margin giving the company a 5% gross margin. 3. Value of salvage at the end of the life of the project of $14 million. NPV ComputationThe following table displays the NPV computation with a 10% weighted average cost of capital for this project. Year| Cash Flow| PV Factor| Present Value|0| (10,000,000)

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