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Assess the relevant cash flows used in forming a capital budgeting decision




Life is wonderful;1. Assess the relevant cash flows used in forming a capital budgeting decision;model. For this assignment, focus upon a replacement problem.;2. 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 page 409 and 410 of the;textbook, Table 12.2. Modify the problem in the following fashion and develop;the analysis within an Excel spreadsheet.;o 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.;o Assume straight-line depreciation on both machines.;o 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%.;o Assume all other assumptions as given.;three sources,5-7 pages, 350 words


Paper#30176 | Written in 18-Jul-2015

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