# Capital budgeting

Please help! I need assistance with the following three questions in the spreadsheet attached.

At he end of 2005, Uma Corporation was considering undertaking a major long-term project in an effort to remain competitive in its industry. The production

and sales departments determined the potential annual cash flow savings that could accrue to he firm if it acts soon. Specifically, they estimate that a mixed stream of future

cash flow savings will occur at the end of the years 2006 through 2011. The years 2012 through 2016 will see consecutive and equal cash flow savings at the end

of each year. The firm estimates that its discount rate over the first 6 years will be 7%. The expected discount rate over the years 2012 through 20156 will be 11%

The project managers will find the project acceptable if it results in present cash flow savings of at least $860,000. The following data is available to assist you:

a) Determine the value - at the beginning of 2006 - of the future cash flow savings expected to be generated by this project.

b) Should the firm undertake this project? Why or why not?

Uma Corp.

Present Value of Expected Future Savings

Period: 2006 through 2016

Discount rate for years 2006 - 2011 7%

Discount rate for years 2012 - 2016 11%

Annual Present

Year Period Savings PVIF PVIFA PVIF Value

2006 1 $110,000

2007 2 120,000

2008 3 130,000

2009 4 150,000

2010 5 160,000

2011 6 150,000

2012 7 90,000

2013 8 90,000

2014 9 90,000

2015 10 90,000

2016 11 90,000

$1,270,000 $-

https://brainmass.com/business/cash-budgeting/capital-budgeting-258578

#### Solution Summary

The solution explains how to determine whether to accept or reject a project