Long Island University Capital Budgeting Decisions Finance Project This is a class project in finance, it is basic class of finance if there is anything no

Long Island University Capital Budgeting Decisions Finance Project This is a class project in finance, it is basic class of finance if there is anything not clear, let me know I need a quality work The due date is in two days, so please make sure to do it on time if there is anything needs to be more clear let me please know I appreciate your efforts and works Capital Budgeting Decisions
Learning Objectives
(a) Develop pro-forma Income Statement
(b) Compute Project Cashflows
(c) Develop problem-solving and critical thinking skills to make long-term investment
1) Life Period of the Equipment = 4 years
2) New equipment cost
$ (200,000)
3) Equipment ship & install cost
$ (35,000)
4) Related start up cost
$ (5,000)
5) Inventory increase
$ 25,000
6) Accounts Payable increase
$
5,000
7) Equip. salvage value before tax
$ 15,000
8) Sales for first year (1)
9) Sales increase per year
10) Operating cost (60% of Sales)
(as a percent of sales in Year 1)
11) Depreciation (Straight Line)/YR
12) Marginal Corporate Tax Rate (T)
13) Cost of Capital (Discount Rate)
a) Pro-forma Income Statement
Year
0
Operations:
Revenue
Operating Cost
Depreciation
EBIT
Taxes
Net Income
1
2
3
$ 200,000
$ (120,000)
$ (60,000)
$ 20,000
$
4,200
$ 15,800
2) ESTIMATING Initial Outlay (Cash Flow, CFo, T= 0)
Year
Initial Investments:
1) Equipment cost
2) Shipping and Install cost
3) Start up expenses
CF0
CF1
CF2
CF3
0
1
2
3
Total Basis Cost (1+2+3)
Operating Cash Flow
1) Net Income
2) Depreciation
Total
Change in Net Working Capital
Terminal:
Salvage value (after tax)
Project Net Cash Flows
3) NPV and IRR
NPV =
IRR =
(a) Would you accept the project based on NPV and IRR?
(b) How would you explain to your CEO what NPV means?
(c) What are advantages and disadvantages of NPV over IRR?
m investment decisions using NPV and IRR method
$
$
$
200,000
5%
(120,000)
-60%
(60,000)
21%
10%
4
CF4
4
(a) Develop pro-forma Income Statement
(b) Compute Project Cashflows
(c) Develop problem-solving and critical thinking skills to make long-term invest
1) Life Period of the Equipment = 4 years
2) New equipment cost
$ (200,000)
3) Equipment ship & install cost
$ (35,000)
4) Related start up cost
$ (5,000)
5) Inventory increase
$ 25,000
6) Accounts Payable increase
$
5,000
7) Equip. salvage value before tax
$ 15,000
8) Sales for first year (1)
9) Sales increase per year
10) Operating cost (60% of Sales)
(as a percent of sales in Year 1)
11) Full depreciation at the beginning
12) Marginal Corporate Tax Rate (T)
13) Cost of Capital (Discount Rate)
a) Pro-forma Income Statement
Year
0
1
2
Operations:
Revenue
Operating Cost
Depreciation
EBIT
Taxes
Net Income
2) ESTIMATING Initial Outlay (Cash Flow, CFo, T= 0)
Year
Initial Investments:
1) Equipment cost
CF0
CF1
CF2
0
1
2
2) Shipping and Install cost
3) Start up expenses
Total Basis Cost (1+2+3)
Operating Cash Flow
1) Net Income
2) Depreciation
Total
Change in Net Working Capital
Terminal:
Salvage value (after tax)
Project Net Cash Flows
3) NPV and IRR
NPV =
IRR =
Impact of 2017 Tax Cut Act on Net Income, Cash Flows, and Capital Budgeting (Inve
(a) Estimate NPV and IRR of the project if equipment is fully depreciated in first year
(b) As CFO of the firm, which scenario, Scenario 1 or 2, would you choose? Why?
to make long-term investment decisions using NPV and IRR method
$
t (60% of Sales)
sales in Year 1)
on at the beginning
orate Tax Rate (T)
l (Discount Rate)
$
$
200,000
5%
(120,000)
-60%
(240,000)
21%
10%
3
4
CF3
CF4
3
4
ly depreciated in first year and tax rate is still equal to 21%. Would you accept or reject the
cept or reject the project?

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