Develop a capital budgeting decision model showing cash flows, cost of capital and decision metrics

Asked by bizgrad
Dated: 6th Dec'17 03:45 PM
Bounty offered: $22.00

Develop a capital budgeting decision model showing cash flows, cost of capital and decision metrics (i.e., npv, irr and payback). Form a conclusion based upon the analysis. Begin with the example problem on age 412 and 413 of the textbook, Table 12.2. Modify the problem in the following fashion and develop the analysis within an Excel spreadsheet.

- Assume the costs except depreciation are uncertain for the new machine. Develop the analysis in a spreadsheet and evaluate the sensitivity of the results for costs of 300, 400 and 500.

- Assume straight-line depreciation on both machines.

- The cost of capital is calculated based upon funding from retained earnings and from debt. The company is assumed to fund itself with 40% debt and 60% retained earnings. The cost of debt capital, rD, is 8%. The cost of capital from retained earnings, rS, is based upon the capital asset pricing model. The risk free rate in the market is 5% and the difference between the expected return on the market and the risk free rate is 5%. The beta for the company is 1.5. The tax rate is assumed to be 40%.

- Assume all other assumptions as given.

Develop a capital budgeting decision model showing cash flows, cost of capital and decision metrics
Answered by bizgrad
Expert Rating: 2371 Ratings
Dated: 6th Dec'17 03:45 PM
5 words and 2 attachment(s).
Tutorial Rating: Not Rated
Sold 1 times.
(preview of the tutorial; some sections have been intentionally blurred)
…refer…

attachments

capital-budget.doc (104 KB)
Preview of capital-budget.doc
case     NPV,   and MIRR     account       of   which makes     valuable       period   period indicates     time       to   the initial     investment,       shorter   period are     n       the   cost decreases,     an       net   IRR, MIRR     period       the   hand, if     cost       a   in the     IRR,       period   higher In     when       is   to 500,     becomes       will   the entire     4880       516   3811 358     763       straight   depreciation method     the       flow   and NPV,     MIRR       declining   because of     expenses       resulted   increasing the     In       the   cost is     500,       negative,   it will     entire       33(141   7211 395     827       24   determined
capital-budgeting.xls (53 KB)