Capital Budgeting
Your company is thinking about acquiring another corporation. You have two choices: the cost of each choice is $250,000. You cannot spend more than that, so acquiring both corporations is not an options. The following are your critical data:
a. Corporation A:
1) revenues = 100K in year one, increasing by 10% each year.
2) Expenses - 20K in year one, increasing by 15% each year
3) Depreciation expense = 5K each year
4) Tax rate = 25%
5) Discount Rate = 10%
b. Corporation B:
Revenues = 150K iin year one, increasing by 8% each year
Expenses = 60K in year one, increasing by 10% in each year
3) Depreciation Expense = 10K each year
4) Tax Rate = 25%
Discount Rate = 11%
You must compute and analyze items a through h using a Microsoft Excel spreadsheet. Make sure all calculations can be seen in the background of the applicable spreadsheet cells.
c) a 5-year projected income statement
d) a 5-year projected case flow
e. Net present value
f. Internal rate of return
g. Payback period
h. Profitability Index
i. Discounted payback period
j. Modified internal rate of return
k. Based on items a through h, which company would you recommend acquiring?
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