Guidelines:
– You are required to to write an interpretation about the calculation that you did in the excel sheet. (use the slides as a reference to explain)
– The interpretation should not be less than 800 words (excluding bibliography, endnotes etc.)
– The interpretation part must consist of an introduction, body, and conclusion.
For example,
Q1 (a, b, c, d, e, f, g, h, I, j, k) every part of the question need analysis
Q3 (a, b) every part of the question need analysis
– analyzing every part is important, so explain it like you explain to someone who doesn’t know anything about Capital Budgeting
3- Conclusion: briefly summarize everything and give a final statement
Guidelines:
–
You are required to to write an interpretation about the calculation that you did in the
excel sheet. (use the slides as a reference to explain)
–
The interpretation should not be less than 800 words (excluding bibliography, endnotes
etc.)
–
The interpretation part must consist of an introduction, body, and conclusion.
1- Introduction: talk about capital budgeting in general
2- body(the most important part): You must explain every question in detail ( using
definition and analysis)
For example,
Why did we use this formula and how we solve the question? Analyze the answer you get from
every question
Q1 (a, b, c, d, e, f, g, h, I, j, k) every part of the question need analysis
Q2 (a, b, c, d, e) every part of the question need analysis
Q3 (a, b) every part of the question need analysis
– analyzing every part is important, so explain it like you explain to someone who doesn’t know
anything about Capital Budgeting
3- Conclusion: briefly summarize everything and give a final statement
1. The Mighty Mouse Computer company is considering whether or not to install a packaging
robot. The robot initial cost $460,000, shipping cost $30,000 and installation $10,000. The robot
can be depreciated using MACRS as a 5-year asset. (MACRS depreciation rates for a five-year
asset: 20%, 32%, 19.2%, 11.52%, 11.52%, and 5.76%.) The robot is expected to last for five
years, at which time management expects to sell it for parts for $100,000. The robot is expected
to replace five employees in the shipping department, saving the company $150,000 each year.
Mighty’s tax rate is 30%.
a) What are the cash flows related to the acquisition of the packaging robot?
b) What are the cash flows related to the disposition of the packaging robot?
c) What are the net cash flows for each year of the robot’s 5 year life?
d) What is the net present value of the robot investment if the cost of capital is 10%?
e) What is the net present value of the robot investment if the cost of capital is 4.5%?
f) What is the profitability index of this investment if the cost of capital is 5%?
g) What is the payback period of the robot investment?
h) What is the discounted payback period of the robot investment if the cost of capital is
5%?
i) What is the internal rate of return of the robot investment?
j) What is the modified internal rate of return of the robot investment if the cash flows are
reinvested at 5%?
k) If the cost of capital is 5%, should Mighty Mouse invest in this robot? Explain why.