# Capital Budgeting Decisions of Choosing a Project

See the attached file(s).

To whom it may concern,

I have put together a solution for this problem but it is flawed. Please do the following:

1. Read the problem

2. Review my spreadsheet - I have put together an assumptions and Cash Flow for each option.

3. Help me ascertain which project is the best.

Is there other metrics to choose from that will help me measure this project?

Question 2: Extrusion Press:

Only one can be accepted

Choice 1, Small Press:

Small Press would cost = $650,000 installed.

Produce Sales = $750,000/yr for 10yrs

Salvage Value (end of 10 yrs) = $20,000

Choice 2, Large Press:

Large Press would cost = $1,000,000 installed.

Produce Sales = $1,075,000/yr for 10yrs

Salvage Value (end of 10 yrs) = $45,000

Large Press would reduce revenue in other presses (erosion) = $100,000/yr for the next 7 yrs.

*Same for both presses:

1. Labor and Materials = 65% of sales

2. Admin costs = 5% of sales

3. **Depreciation = 200% declining balance method

**Presses are considered 7 year property.

4. 15% hurdle rate

5. Salvage proceeds in excess of salvage value at the time of salvage were taxed at income tax rates.

https://brainmass.com/business/capital-budgeting/capital-budgeting-decisions-choosing-project-41595

#### Solution Preview

Stamping Press 1

Small

Assumptions ($ millions)

Installation Cost including Equipment Cost $650,000.00

Length of Project (years): 10

Year 0

Revenue $-

Variable Costs (Materials & Labor) as a % of sales: 65%

Administrative Cost as a % of Sales 5%

Tax Rate: 34%

Equipment MV (salvage) (year 10) $20,000.00 ...

#### Solution Summary

Solution contains step-by-step solution (use of spreadsheet) to appraise the project by capital budgeting techniques such as NPV, IRR payback period.