Solution Capital Budgeting

Jul 10th, 2016
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Solution Over lunch, you and Mary meet to discuss next steps with the expansion project. “Do we have everything we need on sales and costs?” you as

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Respond to the following scenario with your thoughts, ideas, and comments. Besubstantive and clear, and use research to reinforce your ideas.Over lunch, you and Mary meet to discuss next steps with the expansion project.Do we have everything we need on sales and costs? you ask. It must be time tocompute the net present value (NPV) and internal rate of return (IRR) of the Apixexpansion project.We have the data from James and Luke regarding projected sales and costs,respectively, for the food packaging project, says Mary. It is feasible to project that wewill receive a tax break from this implementation. I have information from our audit firmthat indicates that future depreciation methods for taxes will be straight-line; however,the corporate rates will be reduced to 35% as we assumed in our weighted average cost ofcapital (WACC) calculation.That sounds good, you say.Right," says Mary. "You can use a WACC of 10% for the computation of the NPV andcomparison for IRR."Ive got the information I need from Luke and James, you say. "Does this look right toyou? Heres what they gave me, you say, as you hand a sheet of paper to Ma

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