Assignment:
Company is Walmart .
CONCEPTUALIZING CAPITAL BUDGETING PROJECT - ASSIGNMENT 2
What Is the Assignment?
Follow the written Assignment instructions carefully.
Measuring Investment Returns:
Identify and describe a potential capital investment project (investment in fixed assets).
Describe and estimate specific investment needs and cash flows for the project.
Use capital budgeting Excel model (that you develop, don't copy someone else's) to analyze and evaluate the project.
Identify a Capital Budgeting Project for Analysis
Identify a capital budgeting project that may or could be undertaken by the company.
Try to find a project that the company says that it will pursue:
Projects may be identified and or explained in the Annual Report or Form 10K report.
Projects may be explained on the company Website.
Conversations with staff at the company or analysts may identify projects.
Types of Projects
Projects can be expansion or replacement projects or anything involving acquisition of PP&E (fixed assets - property, plant and equipment).
Projects may involve new products or services.
Projects could be principally aimed at cost reductions through improved efficiency in which case the inflows or benefits are the estimated after-tax cost reductions.
Typical projects could include: New products or services, New branch office, New equipment (machinery), New computer system - hardware and software, Cost reduction initiatives, Replacement of a truck fleet, etc.
Think About and Estimate Project Cash Flows
Use the available Excel models to think about how to identify and classify project cash flows:
1. Initial Outlays
2. Operating Cash Flows
3. Terminal Cash Flows
Explain the development of the cash flows in the written analysis.
Estimating Cash Flows
You may be able to find estimates of some key amounts in company-provided information.
It will be necessary to estimate many of the amounts - prices, units sold, fixed costs marginal costs, depreciation schedule, etc.
The accuracy of the estimates is not the issue; the internal consistency of the estimates is very important.
Make every effort to make sure that the estimates are reasonable and internally consistent.
Carefully and thoroughly explain the cash flows in the written analysis.
Use Your Computer Model to Analyze
Use the computer based Excel model that you develop to analyze the project using appropriate capital budgeting metrics.