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10 March Assignmnet

The document provides instructions for a capital budgeting assignment due March 10th with a 10% per day late penalty. Students must individually submit an Excel file to Moodle analyzing whether a company should accept a new project to add lab equipment costing $210,000 plus additional expenses. The assignment requires determining incremental cash flows using a pro forma income statement, calculating net present value (NPV) with a 14% weighted average cost of capital (WACC), and making a recommendation in a 200-word report with references in Excel. The company information and project details are provided to complete the analysis.

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83 views

10 March Assignmnet

The document provides instructions for a capital budgeting assignment due March 10th with a 10% per day late penalty. Students must individually submit an Excel file to Moodle analyzing whether a company should accept a new project to add lab equipment costing $210,000 plus additional expenses. The assignment requires determining incremental cash flows using a pro forma income statement, calculating net present value (NPV) with a 14% weighted average cost of capital (WACC), and making a recommendation in a 200-word report with references in Excel. The company information and project details are provided to complete the analysis.

Uploaded by

kevin kipkemoi
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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FNCE623 Capital Budgeting Assignment

Due Mar 10 midnight. The late submission penalty is 10% each day.
Submit an Excel file to Moodle, Week 9.
The case is open ending. The way you collect data may affect the results. You
must collect or estimate the related data with references if you can’t find them
in the question. You can use either Top Down/ Bottom Up or CCA Tax Shield
approach in the assignment.

THE ASSIGNMENT MUST BE DONE INDIVIDUALLY. ANY ACADEMIC


INTEGRITY ISSUES WILL BE REPORTED TO ACADEMIC OFFICE.
Vita Smart Ltd is a leading high-tech company which is incorporated in Surrey,
BC. The company wants to add a lab equipment in May 2023. They hired you, a
UCW graduate, to prepare a capital budgeting plan for the project. Do you
recommend the company to accept the project or not?
Below is the information that your manager provided:
1. The approximate cost of the machine would be $210,000, with another $10,500
in shipping and handling charges. It would also cost an additional $29,500 to
install the equipment.
2. The equipment would be set up in an unused space at the company’s main plant.
The plant space could be leased out to another firm for $12,000 per year.
3. The machinery has an economic life of 5 years, but the manager didn’t know the
CCA classification and CCA rate. He estimated that the machinery is expected to
have a salvage value of $23,000 after 5 years of use.
4. The new product line would generate incremental sales of 1,550 units per year
for 5 years and they are expected to grow 7.5% per year.
5. The variable cost per unit is estimated in $55 per unit in the first year. Each unit
can be sold for $220 in the first year.
6. The sales price and cost are both expected to increase due to inflation. The fixed
costs are estimated to be $100,000 per year and would increase with inflation. The
manager ask you to do the research about the inflation rate in recent years.
7. The company hired 8 workers to operate the new equipment and provided them
100 hours paid training according to BC minimum wage. They will work on the
production line 40 hours per week under a five years contract with a 15 working
days paid leave. The manager estimated the inventory level will increase 15% of
the total sales every year due to expansion. The accounting teams said the new
project won’t affect A/R and A/P accounts in the future 5 years.
8. The company received $30,000 Research fund from BC government and
decided to use 10% of them to do a market research on the new project. The
engineers advised that there are at least $5,000 for the tunning fees, which will be
paid from the funding.
9. The manager has concerns about the potential effects on other products when
introducing the new equipment. Currently, he estimated a 2% decrease in sales
revenue.
10. The firm is a small business which annual sales revenue under $500,000. The
project is considered by the financial department to be as risky as the company.
The financial department has estimate that the total WACC is 14% including
$10,000 interest paid every year.
Requirements
1. Using an Excel spreadsheet:
• Determine the incremental cash flows.
• Find the NPV of the project by using the pro forma financial statement method to
determine cash flows.
• Set up the necessary equations by referencing to the input variable cells. The
spreadsheet must be formula driven; do not put any numbers in equations, must use
cell references.
• Use Excel’s built-in functions wherever possible
• Must list all the reference sources.

2. Recommendation

Use the results you obtained in the NPV to write a report (ALSO IN EXCEL) on
your findings and recommend whether or not the company should proceed with the
project with reasonings and references. The evaluation must be written in a
professional way and at least 200 words.
3. Present this assignment in a professional way. It is your responsibility to
communicate clearly to the marker.

4. Hand in by Excel Spread Sheets (One Excel File) (FOLLOW THESE


INSTRUCTIONS STRICTLY):
• Spread Sheet 1, cover page with your name and student ID.
• Spread Sheet 2, NPV calculation: Data source, Income Statement, NPV. Must
state the reasoning of the cash inflows/outflows.
• Spread Sheet 3, Project Evaluation/Summary
• Spread Sheet 4, References

EVALUATION GUIDE Max. Mark


Marking
80
1. Excel NPV and supporting
formula sheet, including correct
financial statements and complete
information.

10
2. Interpretation of
results/recommendation and
references

10
3. Presentation (formatting and
organization)

TOTAL 100

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