Capital budgeting
Capital budgeting is the process by which long-term fixed assets are evaluated and possibly selected or rejected for investment purposes. The purpose of capital budgeting is to evaluate potential projects for possible investment by the firm.
Questions: Address all of the following questions in a brief but thorough manner.
What are the various methods for evaluating possible capital projects, in terms of their possible benefits to the firm? Describe the benefits and/or shortcomings of each.
What is the NPV profile and what are its uses?
The final paragraph (three or four sentences) of your initial post should summarize the one or two key points that you are making in your initial response.
Your posting should be the equivalent of 1 to 2 single-spaced pages (500–1000 words) in length.
Submit your posting to the Discussion Area below by Saturday, December 17, 2016, using the lessons and vocabulary found in the reading.
Capital budgeting
Follow-up posts need to be completed by the end of the week.
Assignment 1 Grading Criteria
Maximum Points
Identified the methods for evaluating possible capital projects, describing the benefits and/or shortcomings of each.
10
Identified the NPV profile and its uses.
10
Participation in discussion, including relevance and depth of postings, responses to at least two students and instructor, and contributions on two or more days per week.
10
Work was clearly written, with logical flow, with minimal errors (including APA format), and utilized appropriate citation/reference of sources.
10
Total:
40
aFTER THE 2ND PAGE PLEASE START THIS IN THE PAGE 3, 4 , 5 AND 6. PLEASE
The Allied Group is considering two investments. The first investment involves a packaging machine, which can be used to package garments for shipping orders to customers. The second possible investment would be a molding machine that would be used to mold the mannequin parts.
Capital budgeting
The first possible investment is the packaging machine, which will cost $14,000. The second investment, the molding machine, would cost $12,000. The expected cash flows for the two projects are given below and the cost of capital to the firm is 15%. Both machines will be unusable after five years and have no salvage value.
The net cash flows for the two possible projects are given in the following table:
Year Packaging Machine Molding Machine
0 ($14000) ($12,000)
1 4100 3200
2 3300 2800
3 2900 2800
4 2200 2200
5 1200 2200
Questions: Address all of the following questions in a brief but thorough manner.
Calculate each project’s payback period.
Calculate the NPV for each project.
Calculate the IRR for each project.
If the two projects are independent of each other, which projects, if any, should be selected? Explain why or why not.
If the two projects are mutually exclusive, which project, if any, should be selected? Explain why.
Name your report: SU_MBA5009_W5_A3_LastName_Firs
Submit your four- to five-page paper in APA style to the W5 Assignment 3
Capital budgeting
Assignment Grading Criteria
Maximum Points
Calculated each project’s payback period and came to the correct conclusions.
50
Calculated the NPV for each project and came to the correct conclusions.
50
Calculated the IRR for each project and came to the correct conclusions.
50
Identified which projects, if any, should be selected if the two projects were independent of each other and explained why.
30
Identified which project, if any, should be selected if the two projects were mutually exclusive and explained why.
30
Work was clearly written, with logical flow, with minimal errors (including APA format) and utilized appropriate citation/reference of sources.
40
Total:
250
