Capital Budgeting Decisions of Choosing a Project
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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) = $100,000/yr for the next 7 yrs.
*Same for both presses:
1. Labor and Materials = 65% of sales
2. Admin costs = 5% of sales
3. **Depreciation = 200% declining balance method
**Presses are considered 7 year property.
4. 15% hurdle rate
5. Salvage proceeds in excess of salvage value at the time of salvage were taxed at income tax rates.
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Solution Summary
Solution contains step-by-step solution (use of spreadsheet) to appraise the project by capital budgeting techniques such as NPV, IRR payback period.
Solution Preview
Stamping Press 1
Small
Assumptions ($ 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 ...
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