In this discussion forum, you will collaborate with members of your cohort on subjects and assignments related to this workshop. This is the place for you to ask questions, offer advice, or make supplemental comments related to any subject in this workshop’s materials.

**Upon successful completion of this discussion, you will be able to:**

- Determine the financial suitability of capital budgeting projects utilizing common mathematical analysis techniques.
- Evaluate the advantages and disadvantages of common capital budgeting techniques.
- Determine the relevant cash flows for a proposed capital investment project.
- Determine if a project is acceptable and by what standards.
- Set a bid price for a project.
- Evaluate the equivalent annual cost of a project.

- Textbook:
*Fundamentals of Corporate Finance*

The purpose of this collaboration forum is for students to work together (collaborate) in an effort to better understand assignments. While this forum is not a place to provide all your answers (it is not designed to facilitate cheating), it is intended for you to help each other if someone is struggling with a particular problem. Ask your question in this forum by providing needed problem details for reference, then move on to work another problem. Later, come back and see if anyone has provided help for you or if you can provide assistance to a classmate. Review the provided video for some tips regarding how to best use the collaboration forum.

- Within this collaboration discussion you will:
- Ask questions regarding concepts, problems, or assignments you find difficult or confusing.
- Ask questions about terminology, applications, and solution processes.
- Share insights, new understandings, or “ah ha” moments resulting from your reading or work on assignments.
- Deepen the discussion by raising the application or the implications of a concept presented in the textbook or devotional materials.
- In addition, you may meet the posting requirement by posting a proposed solution to a question raised by another student and then dialoguing about it in this forum, attempting to reach a solution.

- Your postings should:
- Clearly state the problem number, problem details, and the questions you have.
- Provide clear questions and proposed answers with evidence of critical thinking by incorporating material from the assigned reading.
- Add greater depth to the discussion by introducing new ideas or observations.
- Provide clarification to classmates’ questions and provide insight into the discussion.

==============================================================

This is a two-week discussion. Your initial post is due by the end of this workshop. You will then engage in dialogue with your classmates in at least two discussion threads. While your interactions are not due until the end of Workshop Two, you should be prepared to engage in the discussion throughout both workshops.

Stories about capital budgeting decisions in the corporate world do not usually make the evening news, but capital budgeting decisions play a significant role in the growth of corporate profits and domestic and international economies. In this discussion assignment, you will research a current article on the subject of capital budgeting and share with your cohort what you have discovered and how the information relates to the capital budgeting concepts you have learned in your textbook reading.

**Upon successful completion of this discussion, you will be able to:**

- Research the current literature on the subject of capital budgeting, and then choose and discuss an article that relates to the concepts learned in the textbook.

- Textbook:
*Fundamentals of Corporate Finance* - Website: Off Campus Library Services (OCLS)
- Website: APA Style Guide

In this discussion, you will research a current article from a reputable scholarly source on the subject of capital budgeting. Before beginning your analysis, review the articles that have been previously selected by your classmates as indicated by their initial postings in the discussion forum to avoid duplicate coverage of articles. Then, come back to the discussion forum, post your analysis, and comment on the articles of your classmates.

- Review the rubric to make sure you understand the criteria for earning your grade.
- Review Chapter 9 and read Chapter 10 of
*Fundamentals of Corporate Finance.* - Research a current article from a reputable scholarly source on the subject of capital budgeting:
- Use this link to access a search prepared for you by Off Campus Library Services.
- Once you have logged into the OCLS database, you will be presented with search-filtered results for peer-reviewed, current articles on the appropriate topic.
- Review the articles shown there carefully. Read several article summaries, and then select an article that you feel is the most relevant and of most interest to you.
- Before beginning your article analysis
*,*verify that your article has not already been chosen*.*If it has not been chosen, make an initial posting indicating the title of the article and your name to reserve the article while you work on it.

- Respond to the following by editing the discussion posting you made when you identified the article you selected:
- For questions on APA style, go to the APA Style Guide.
- Briefly summarize your findings and how the article information relates to the concepts you have learned in the textbook.
- Discuss how the information you discovered could be applied to your company or to a company with which you are familiar to improve its capital budgeting process.
- Provide an appropriate reference and citation for both the article and the related concepts you use from your textbook.
- Your initial post should be 200 to 400 words in length and include at least two sources that are properly cited.
- The initial post is due by the end of the workshop.

=============================================

The capital budgeting process is both an art and a science. The art is in the intuitive, innovative, and entrepreneurial sense of corporate leadership. The science is in the creation and interpretation of valuation methods to determine which capital projects go forward, which ones are set aside, and of the ones that go forward, which projects have priority in the event of limited funds available for capital investment. In this assignment, you will work through some of the calculations and interpretations for making capital budgeting decisions.

**Upon successful completion of this assignment, you will be able to:**

- Determine the financial suitability of capital budgeting projects utilizing common mathematical analysis techniques.
- Evaluate the advantages and disadvantages of common capital budgeting techniques.
- Determine the relevant cash flows for a proposed capital investment project.
- Determine if a project is acceptable and by what standards.
- Set a bid price for a project.
- Evaluate the equivalent annual cost of a project.

- Textbook:
*Fundamentals of Corporate Finance* - File: Chapter 9 & 10 Worksheet
- File: Chapter 9 PowerPoint
- File: Chapter 10 PowerPoint
- File: Workshop One Practice Problems

For this assignment, it will be strategic for you to first review Chapters 5 and 6 from the textbook regarding time value of money methodologies, such as present value and rate of return. Scan those chapters and then go to the "Concepts Review and Self-Test Problems" at the end of the textbook chapters to review critical calculations and the use of Excel, where appropriate. This material would have been covered in your preceding finance courses, but the span of time between the courses might be cause for a review.

- Review the rubric to make sure you understand the criteria for earning your grade.
- In your textbook,
*Fundamentals of Corporate Finance*read:- Chapter 9, “Net Present Value and Other Investment Criteria”
- Chapter 10, “Making Capital Investment Decisions”

- Study the provided practice problems and solutions in the Workshop One Practice Problems file to help you better understand the processes used to analyze capital projects.
- Download and review the PowerPoint files for Chapter 9 and Chapter 10 to help you further understand the chapters.
- Using Chapter 9 & 10 Worksheet provided, complete all nine of the following problems:
- Chapter 9, Problem 1: Calculating Payback
- Chapter 9, Problem 2: Calculating Discounted Payback
- Chapter 9, Problem 3: Calculating Average Accounting Return
- Chapter 9, Problem 4: Calculating Internal Rate of Return
- Chapter 9, Problem 5: Calculating Net Present Value
- Chapter 9, Problem 6: Problems with Profitability Index
- Chapter 10, Problem 1: Calculating Depreciation
- Chapter 10, Problem 2: Calculating Project OCF
- Chapter 10, Problem 3: Comparing Mutually Exclusive Projects (calculate the OCF and NPV of each project to compare)

- Be sure your Excel spreadsheet is prepared in a professional manner, with answers clearly indicated and all your calculations shown. Full credit will not be given if your process for arriving at the answer is not displayed.
- When you’ve completed your assignment, save a copy for yourself, and submit by the end of the workshop.

=======================================

The goal of Applied Managerial Finance is to not only introduce you to various financial concepts, theories, and methods of analysis but also to give you an opportunity to apply this learning in order to evaluate the financial strengths, weaknesses, and risks of a real-world company and to formulate recommendations for management. To that end, you will work on an analysis and case study research paper in which you will apply various managerial finance techniques to an actual corporation.

**Upon successful completion of this assignment, you will be able to:**

- Evaluate a company’s financial strengths and weaknesses based on its public financial statements.
- Analyze a company’s capital structure and potential financial risks.
- Develop recommendations for management action based on a company’s financial strengths, weaknesses, and risks.

- Textbook:
*Fundamentals of Corporate Finance* - Website: Off Campus Library Services (OCLS)
- Website: Yahoo Finance
- Website: Reuters
- Website: Morningstar
- Website: MSN Money
- Website: APA Style Guide

You may select the company of your choice, but it is highly recommended you choose a large public corporation that is easy to research. Common choices include such companies as Apple, Ford, Walmart, ExxonMobil, or GE. Check with your instructor if you have any questions about your selection.

Your paper will detail your analysis and make a recommendation, firmly grounded and supported by your analysis, as to what changes management should make in order to address its financial weaknesses or further capitalize on its financial strengths.

With each workshop, you will complete an additional section of the paper, culminating in a comprehensive final product. For this workshop, your goal is to review the requirements for the project, select your company, and write a brief overview that will serve as the foundation for your analysis.

- Review the rubric to make sure you understand the criteria for earning your grade.
- Familiarize yourself with the structure and requirements for the full, final project by studying the instructions and rubric for the 6.6 Assignment.
- Select a large public corporation as the subject of your research.
- Begin conducting research on your subject company, focusing initially on its management, its history, and its product lines.
- Sources of research information might consist of (but are not limited to) annual financial reports published by the company, news articles and analyst opinions, interviews with management, and reputable internet sources that provide comparable industry financial information.
- Recommended financial news and data sites include Yahoo Finance, Reuters, Morningstar, and MSN Money. Extensive data and analysis is also available through Off Campus Library Services.
- For instance, detailed company profiles can be found for most large companies in the Business Source Complete database.
- From the library homepage (OCLS), under “Article Databases,” select “Business.” On the next page, select “Business Source Complete.” You may be asked to login at this point, and you should then be in the Business Source Complete database.
- At the top-center of the screen, find the word “MORE.” Hover over the word, and you will get a drop-down menu where you can choose Company Profiles. Select and you will be taken to a screen where you can search for a company.

- A minimum of 12 unique research sources from reputable scholarly, news, or industry sources will be required for the final paper. Keep track of your resources so you can appropriately list them in the reference list of your paper. The sources should represent an appropriately well-balanced variety of perspectives.

- Write a brief overview of the company, its management, its history, and its product lines, keeping in mind that this overview will provide a foundation for the rest of your paper.
- The full, completed paper will consist of a minimum of 12 pages of content (not including cover, reference, and appendix pages). It is therefore recommended that this section should be one to two pages in length. Be concise but thorough.
- Your paper should be professionally written and follow full APA format, with all appropriate citations, references, and formatting. It should include an appropriate cover page and a references section.
- For questions on APA style, go to the APA Style Guide.

- When you've completed your overview, save a copy for yourself and submit by the end of the workshop.

=============================================================

Chapter 9 – Assignment 1.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Problem 1: Calculating Payback | 5 Points | ||||||||||||||||||||||||||||||||||||||||||||||||||

Siva, Inc., imposes a payback cutoff of three years for its international investment projects. The company has two international projects with the following projected cash flows: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year | Cash Flow (A) | Cash Flow (B) | |||||||||||||||||||||||||||||||||||||||||||||||||

0 | $ (52,000) | $ (55,000) | |||||||||||||||||||||||||||||||||||||||||||||||||

1 | $ 17,000 | $ 14,000 | |||||||||||||||||||||||||||||||||||||||||||||||||

2 | $ 19,000 | $ 16,000 | |||||||||||||||||||||||||||||||||||||||||||||||||

3 | $ 17,000 | $ 22,000 | |||||||||||||||||||||||||||||||||||||||||||||||||

4 | $ 11,000 | $ 285,000 | |||||||||||||||||||||||||||||||||||||||||||||||||

a) What is the precise payback period (in decimal form) for these two projects? b) Using payback period rules, should it accept either of them? | |||||||||||||||||||||||||||||||||||||||||||||||||||

Create your Original Solution Below – Be sure to show all calculations and clearly indicate answers. | |||||||||||||||||||||||||||||||||||||||||||||||||||

This is the Student Template, provided in the course materials by D. Kendall April 2020 |

Chapter 9 – Assignment 1.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Problem 2: Calculating Discounted Payback | 5 Points | ||||||||||||||||||||||||||||||||||||||||||||||||||

An investment project has annual cash inflows of $3,700, $4,800, $6,300, and $5,400, for the next four years, respectively. The discount rate is 12 percent. | |||||||||||||||||||||||||||||||||||||||||||||||||||

a) What is the discounted payback period if the initial cost is $6,200? b) What is the discounted payback period if the initial cost is $9,600? c) What is the discounted payback period if the initial cost is $11,800? | |||||||||||||||||||||||||||||||||||||||||||||||||||

Use the Template Provided Below to Create Your Solution – Pay close attention to the formulas and formatting of the inputs. | |||||||||||||||||||||||||||||||||||||||||||||||||||

Input area: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Annual cash inflows: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Discount rate | |||||||||||||||||||||||||||||||||||||||||||||||||||

Initial cost | |||||||||||||||||||||||||||||||||||||||||||||||||||

Initial cost | |||||||||||||||||||||||||||||||||||||||||||||||||||

Initial cost | |||||||||||||||||||||||||||||||||||||||||||||||||||

Output area: | |||||||||||||||||||||||||||||||||||||||||||||||||||

. | |||||||||||||||||||||||||||||||||||||||||||||||||||

Discounted payments: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 1 | $ – 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||

Year 2 | $ – 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||

Year 3 | $ – 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||

Year 4 | $ – 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||

Payback period | – 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||

Payback period | – 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||

Payback period | – 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||

This is the Student Template, provided in the course materials by D. Kendall April 2020 |

Chapter 9 – Assignment 1.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Problem 3: Calculating AAR | 5 Points | ||||||||||||||||||||||||||||||||||||||||||||||||||

You're trying to determine whether to expand your business by building a new manufacturing line. The automated assembly line has an installation cost of $25 million, which will be depreciated straight-line to zero over its five-year life. The line has projected net income of $1,754,000, $1,820,500, $1,716,300, $1,352,000, and $1,097,400 over these five years. | |||||||||||||||||||||||||||||||||||||||||||||||||||

a) What is the project's average accounting return (AAR)? b) If the company's required return is 15%, should it pursue the project? | |||||||||||||||||||||||||||||||||||||||||||||||||||

Use the Template Provided Below to Create Your Solution – Pay close attention to the formulas and formatting of the inputs. | |||||||||||||||||||||||||||||||||||||||||||||||||||

Input area: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Installation cost ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||

# of years | |||||||||||||||||||||||||||||||||||||||||||||||||||

Projected net income ($): | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Acceptance Criteria (%) | |||||||||||||||||||||||||||||||||||||||||||||||||||

. | |||||||||||||||||||||||||||||||||||||||||||||||||||

Output area: | |||||||||||||||||||||||||||||||||||||||||||||||||||

. | |||||||||||||||||||||||||||||||||||||||||||||||||||

Average net income | ERROR:#DIV/0! | ||||||||||||||||||||||||||||||||||||||||||||||||||

Average book value | ERROR:#DIV/0! | ||||||||||||||||||||||||||||||||||||||||||||||||||

AAR | ERROR:#DIV/0! | ||||||||||||||||||||||||||||||||||||||||||||||||||

Decision | ERROR:#DIV/0! | ||||||||||||||||||||||||||||||||||||||||||||||||||

This is the Student Template, provided in the course materials by D. Kendall April 2020 |

Chapter 9 – Assignment 1.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Problem 4: Calculating IRR | 5 Points | ||||||||||||||||||||||||||||||||||||||||||||||||||

A firm evaluates all of its projects by applying the IRR rule. The firm's required rate of return for its projects is 15 percent. A proposed project is expected to have the following cash flows: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year | Cash Flow | ||||||||||||||||||||||||||||||||||||||||||||||||||

0 | $ (250,000) | ||||||||||||||||||||||||||||||||||||||||||||||||||

1 | $ 85,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||

2 | $ 130,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||

3 | $ 110,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||

a) What is the IRR for this project? b) Should the firm accept this project? | |||||||||||||||||||||||||||||||||||||||||||||||||||

Use the Template Provided Below to Create Your Solution – Pay close attention to the formulas and formatting of the inputs. | |||||||||||||||||||||||||||||||||||||||||||||||||||

Input area: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Required Return | |||||||||||||||||||||||||||||||||||||||||||||||||||

Annual cash flows: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||

. | |||||||||||||||||||||||||||||||||||||||||||||||||||

Output area: | |||||||||||||||||||||||||||||||||||||||||||||||||||

. | |||||||||||||||||||||||||||||||||||||||||||||||||||

IRR | ERROR:#NUM! | ||||||||||||||||||||||||||||||||||||||||||||||||||

Accept/Reject | ERROR:#NUM! | ||||||||||||||||||||||||||||||||||||||||||||||||||

This is the Student Template, provided in the course materials by D. Kendall April 2020 |

Chapter 9 – Assignment 1.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Problem 5: Calculating NPV | 5 Points | ||||||||||||||||||||||||||||||||||||||||||||||||||

A firm evaluates all of its projects by applying the NPV decision rule. A proposed project is expected to have the following cash flows: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year | Cash Flow | ||||||||||||||||||||||||||||||||||||||||||||||||||

0 | $ (250,000) | ||||||||||||||||||||||||||||||||||||||||||||||||||

1 | $ 85,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||

2 | $ 130,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||

3 | $ 110,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||

a) At a required return of 12 percent, what is the project's NPV? Should the firm accept this project? b) At a required return of 18 percent, what is the project's NPV? Should the firm accept this project? | |||||||||||||||||||||||||||||||||||||||||||||||||||

Create your Original Solution Below – Be sure to show all calculations and clearly indicate answers. | |||||||||||||||||||||||||||||||||||||||||||||||||||

This is the Student Template, provided in the course materials by D. Kendall April 2020 |

Chapter 9 – Assignment 1.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Problem 6: Problems with Profitability Index | 10 Points | ||||||||||||||||||||||||||||||||||||||||||||||||||

The Sloan Corporation is trying to choose between the following two mutually-exclusive design projects: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Year | Cash Flow (A) | Cash Flow (B) | |||||||||||||||||||||||||||||||||||||||||||||||||

0 | $ (76,500) | $ (21,600) | |||||||||||||||||||||||||||||||||||||||||||||||||

1 | $ 37,200 | $ 11,700 | |||||||||||||||||||||||||||||||||||||||||||||||||

2 | $ 37,200 | $ 11,700 | |||||||||||||||||||||||||||||||||||||||||||||||||

3 | $ 37,200 | $ 11,700 | |||||||||||||||||||||||||||||||||||||||||||||||||

a) Calculate the profitability index for both projects if the required return is 12 percent. Based on the profitability index decision rule, which project should the firm accept? b) Calculate the NPV for both projects if the required return is 12 percent. Based on the NPV decision rule, which project should the firm accept? c) Explain why your answers for (a) and (b) are different? | |||||||||||||||||||||||||||||||||||||||||||||||||||

Create your Original Solution Below – Be sure to show all calculations and clearly indicate answers. | |||||||||||||||||||||||||||||||||||||||||||||||||||

This is the Student Template, provided in the course materials by D. Kendall April 2020 |

Chapter 10 – Assignment 1.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Problem 1: Calculating Depreciation | 5 Points | ||||||||||||||||||||||||||||||||||||||||||||||||||

A piece of newly-purchased industrial equipment costs $1,240,000 and is classified as seven-year property under MACRS. Depreciation on this equipment will impact the company's taxes, and will therefore be a significant factor in determing whether the company should proceed with the purchase. | |||||||||||||||||||||||||||||||||||||||||||||||||||

a) Calculate the annual depreciation under MACRS for all eight years depreciation is allowed. b) Calculate the end-of-year book values for this equipment, using MACRS, for all eight years. | |||||||||||||||||||||||||||||||||||||||||||||||||||

Input area: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Purchase Price ($) | |||||||||||||||||||||||||||||||||||||||||||||||||||

*7-year property under MACRS | |||||||||||||||||||||||||||||||||||||||||||||||||||

Output area: | |||||||||||||||||||||||||||||||||||||||||||||||||||

. | |||||||||||||||||||||||||||||||||||||||||||||||||||

Yr. | Beginning Book Value | MACRS | Depreciation | Ending Book value | |||||||||||||||||||||||||||||||||||||||||||||||

1 | $ – 0 | 0.1429 | $ – 0 | $ – 0 | |||||||||||||||||||||||||||||||||||||||||||||||

2 | – 0 | 0.2449 | – 0 | – 0 | |||||||||||||||||||||||||||||||||||||||||||||||

3 | – 0 | 0.1749 | – 0 | – 0 | |||||||||||||||||||||||||||||||||||||||||||||||

4 | – 0 | 0.1249 | – 0 | – 0 | |||||||||||||||||||||||||||||||||||||||||||||||

5 | – 0 | 0.0893 | – 0 | – 0 | |||||||||||||||||||||||||||||||||||||||||||||||

6 | – 0 | 0.0892 | – 0 | – 0 | |||||||||||||||||||||||||||||||||||||||||||||||

7 | – 0 | 0.0893 | – 0 | – 0 | |||||||||||||||||||||||||||||||||||||||||||||||

8 | – 0 | 0.0446 | – 0 | – 0 | |||||||||||||||||||||||||||||||||||||||||||||||

This is the Student Template, provided in the course materials by D. Kendall April 2020 |

Chapter 10 – Assignment 1.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Problem 2: Calculating Project OCF | 10 Points | ||||||||||||||||||||||||||||||||||||||||||||||||||

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.9 million. The fixed asset will be depreciated straight-line to zero over its three-year life, after which time it will be worthless (zero salvage value). The project is estimated to generate $2,190,000 in annual sales, with costs of $815,000. The applicable tax rate is 35 percent, and the required rate of return on the project is 12 percent. | |||||||||||||||||||||||||||||||||||||||||||||||||||

a) What is the Operating Cash Flow (OCF) for this project? b) What is the project's Net Present Value (NPV)? | |||||||||||||||||||||||||||||||||||||||||||||||||||

Create your Original Solution Below – Be sure to show all calculations and clearly indicate answers. | |||||||||||||||||||||||||||||||||||||||||||||||||||

This is the Student Template, provided in the course materials by D. Kendall April 2020 |

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Chapter 10 – Assignment 1.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||

Problem 3: Comparing Mutually-Exclusive Projects | 10 Points | ||||||||||||||||||||||||||||||||||||||||||||||||||

Lang Industrial Systems Company (LISC) is trying to decide between two different conveyer belt systems. System A costs $290,000, has a four-year life, and requires $80,000 in pretax annual operating costs. System B costs $375,000, has a six-year life, and requires $74,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The applicable tax rate is 34 percent and the discount rate is 8 percent. | |||||||||||||||||||||||||||||||||||||||||||||||||||

a) Calculate the OCF and NPV for each project. b) Which project should the firm choose? | |||||||||||||||||||||||||||||||||||||||||||||||||||

Input area: | |||||||||||||||||||||||||||||||||||||||||||||||||||

System A: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Cost | |||||||||||||||||||||||||||||||||||||||||||||||||||

Pretax annual operating cost | |||||||||||||||||||||||||||||||||||||||||||||||||||

Life | |||||||||||||||||||||||||||||||||||||||||||||||||||

System B: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Cost | |||||||||||||||||||||||||||||||||||||||||||||||||||

Pretax annual operating cost | |||||||||||||||||||||||||||||||||||||||||||||||||||

Life | |||||||||||||||||||||||||||||||||||||||||||||||||||

Both: | |||||||||||||||||||||||||||||||||||||||||||||||||||

Tax rate | |||||||||||||||||||||||||||||||||||||||||||||||||||

Discount rate | |||||||||||||||||||||||||||||||||||||||||||||||||||

*Depreciation staight-line | |||||||||||||||||||||||||||||||||||||||||||||||||||

Output area: | |||||||||||||||||||||||||||||||||||||||||||||||||||

. | |||||||||||||||||||||||||||||||||||||||||||||||||||

System A: | |||||||||||||||||||||||||||||||||||||||||||||||||||

OCF | ERROR:#DIV/0! | ||||||||||||||||||||||||||||||||||||||||||||||||||

NPV | ERROR:#DIV/0! | ||||||||||||||||||||||||||||||||||||||||||||||||||

System B: | |||||||||||||||||||||||||||||||||||||||||||||||||||

OCF | ERROR:#DIV/0! | ||||||||||||||||||||||||||||||||||||||||||||||||||

NPV | ERROR:#DIV/0! | ||||||||||||||||||||||||||||||||||||||||||||||||||

If the system will not be replaced | |||||||||||||||||||||||||||||||||||||||||||||||||||

when it wears out, then | ERROR:#DIV/0! | ||||||||||||||||||||||||||||||||||||||||||||||||||

should be chosen, because it has the more | |||||||||||||||||||||||||||||||||||||||||||||||||||

positive NPV. | |||||||||||||||||||||||||||||||||||||||||||||||||||

This is the Student Template, provided in the course materials by D. Kendall April 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||