Capital Budgeting Analysis Assignment

Task:
A. Complete the attached “Capital Budgeting Template” by doing the following:
1. Calculate the net cash flow that should be used for each year in the discounted cash
flow analysis.
2. Calculate the net present value (NPV) of this project using a discount rate equal to
the company’s weighted average cost of capital. Round all dollar amounts to the
nearest whole dollar.

3. Calculate the expected yield on the project using the discounted cash flow internal
rate of return (IRR) method. Round all dollar amounts to the nearest whole dollar.
4. Calculate the accounting rate of return for this project.
5. Calculate the unadjusted payback period. State your answers in years and months.
B. Prepare a computer-based presentation in which you do the following:
1. Identify what the correct net cash flow for the second year would be if all cash
expenses were as described in the scenario but there were no depreciation expense.
a. Explain the impact of depreciation on net cash flow for the second year.
2. Based upon your NPV analysis in part A2, make a recommendation to Entrepreneur D
regarding what decision to make.
a. Explain why this is an appropriate action.
3. Based upon your IRR analysis in part A3, make a recommendation to Entrepreneur D
regarding what decision to make.
a. Explain why this is an appropriate action.
4. Explain why the accounting rate of return on this project is different from the internal
rate of return for the same capital investment.
5. Explain the relative significance of the unadjusted payback period in this decision
situation.
6. Explain how the weighted average cost of capital should be used in capital budgeting
analysis when utilizing the NPV method.

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