By the end of Week 3 – select a company, download the most recent copy of the company’s 10-K report, and submit your company choice to your professor for approval.
The parameters for the week 7 project deliverable are as follows.
The firm is looking to expand its operations by 10% of the firm’s net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm’s balance sheet.)
The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment’s cost.
The annual EBIT for this new project will be 18% of the project’s cost.
The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. Use 35% as the tax rate in this project.
The hurdle rate for this project will be the WACC that you are able to find on a financial website, such as Gurufocus.com. If you are unable to find the WACC for a company, contact your instructor. He or she will assign you a WACC rate.
Signature Assignment Deliverables
Prepare a narrated PowerPoint presentation that will highlight the following items.
Your calculations for the amount of property, plant, and equipment and the annual depreciation for the project
Your calculations that convert the project’s EBIT to free cash flow for the 12 years of the project.
The following capital budgeting results for the project
Net present value
Internal rate of return
Discounted payback period.
Your discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project
Once again, you may embed your Excel spreadsheets into your document. Be sure to follow APA standards for this project.
Grading Rubric
Possible
Points
Criteria and Point Range
Calculation of Cost of Project
18
0-5
6-9
10-14
15-18
All calculations are incorrect, or not presented.
Calculation of PP&E, salvage value, or annual depreciation is incorrect.
Cost of PP&E is mostly correct with some minor calculation errors.
Cost of Property, plant and Equipment and annual depreciation correctly calculated.
Estimation of Cash Flows
27
0-13
14-18
19-23
24-27
All aspects of the cash flow calculation are incorrect, or not presented.
Significant, but identifiable errors are presented in the calculation to convert income to cash flows..
Cash flows are properly converted from accrual-based net income to cash flows from the project, with minor errors.
Cash flows are properly converted from accrual-based net income to cash flows from the project.
Capital Budgeting
Analysis
27
0-13
14-18
19-23
24-27
All of the capital budgeting calculations are incorrect, or not presented.
Two errors noted in the NPV, IRR, and Discounted Payback Period calculations.
One error noted in the NPV, IRR and Discounted payback period calculations.
All of the NPV, IRR, and Discounted Payback period calculations are correct.
Form
18
0-5
6-9
10-14
15-18
Poor writing and presentation skills, or no presentation provided.
Several problems noted in regard to writing and presentation skills.
Writing and presentation done well with a few minor errors
Virtually no errors in writing or presentation.
