Select a company in which you have an interest. For that company, describe a capital budgeting project (i.e., an investment in fixed assets) that might be undertaken by the company. Make sure that the project has an initial investment in Year 0, followed by a series of annual cash flows for at least seven (7) years.
1. Determine (make estimate) of the discount rate, or hurdle rate, that is appropriate for this project and explain the determination of that rate?
2. Develop your own Excel spreadsheet model that can be used to determine the Net Present Value (NPV), Internal Rate of Return (IRR), Modified Internal Rate of Return (MIRR), and Profitability Index (PI)? The Excel spreadsheet that you develop must use Excel’s automated financial functions for determining the NPV, IRR and MIRR. What is the NPV, IRR, MIRR, and PI for the project?
3. Using results of the spreadsheet analysis, explain whether, or not, the project should be implemented? Also, discuss what the various indicators (i.e., NPV, IRR, MIRR and PI) mean?
Capital Budgeting Analysis
ENTER CORRECT DATA IN YELLOW-CODED CELLS
($750,000,000) Projected Initial Cost
10.92% WACC
0 1 2 3 4 5 Year
($750,000,000) ($10,000,000) $200,000,000 $250,000,000 $300,000,000 $400,000,000 Cash flows
($760,000,000) ($560,000,000) ($310,000,000) ($10,000,000) 0.025 Cumulative cash flows
$23,164,711 NPV
11.84% IRR
11.59% MIRR
4.025 Payback years