Analyzing Capital Expenditures

Assume that you have received a capital expenditure request for $52,000 for plant equipment and that you are required to do a justification analysis using capital budgeting techniques.  The company’s cost of capital is 12% and the equipment (investment) is expected to generate net cash inflows of $13,000 per year for 8 years and then $9,000 for one year.

You are to calculate and explain your quantitative calculations of each of the four capital-budgeting techniques listed, then, based upon these calculations, write a summary that provides a justification to proceed or not proceed with the project.

  • Calculate the project’s net present value (NPV).
  • Calculate the project’s internal rate of return (IRR).
  • Calculate the project’s profitability index.  
  • Calculate the project’s discounted payback period.  
  • Recommend whether the project should be accepted or rejected and explain why.

To complete this assignment, submit an Excel file with your time value calculations, and a two-page paper that explains the calculations and provides your recommended decision and explanation of why that decision is recommended.   The paper must be submitted as a Word document and it must follow APA style guidelines.

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By February 19, 2013.

Assignment 3 Grading Criteria
Maximum Points
Calculated NPV correctly.
16
Calculated IRR correctly.
16
Calculated Profitability Index correctly.
12
Calculated Discounted Payback correctly.
12
Recommended and explained a logical decision.
16
Used Excel function tools properly.
16
Writing Craftsmanship, APA and Ethical Scholarship.
12
Total:
100

 

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