Major Equipment Purchase and Expansion into Europe Projects OVERVIEW: Create an Excel spreadsheet in which you use capital budgeting tools to determine the

Major Equipment Purchase and Expansion into Europe Projects OVERVIEW: Create an Excel spreadsheet in which you use capital budgeting tools to determine the quality of 3 proposed investment projects, as well as a 6-8 page report that analyzes your computations and recommends the project that will bring the most value to the company.

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Finance and Accounting Videos by Prof Coram. (n.d.). Profitability index calculation using Excel [Video] | Transcript Retrieved from
Financecanbefun. (2014). Capital budgeting in Excel example [Video] | Transcript Retrieved from
Ross, S. A., Westerfield, R. W., Jaffe, J. F., & Jordan, B. D. (2018). Corporate finance: Core principles and applications (5th ed.). New York, NY: McGraw-Hill. Available from the bookstore.
Chapter 5, “Interest Rates and Bond Valuation,” pages 130–164. This chapter illustrates the employment of time value of money concepts to determine the value of corporate debt/bonds and common/preferred stock.
McCracken, M. (n.d.). Bond valuation [Video] | Transcript Retrieved from http://www.teachmefinance.com/bondvaluation.html

INSTRUCTIONS: The proposed projects for you to review are as follows.

Project A: Major Equipment Purchase

A new major equipment purchase, which will cost $10 million; however, it is projected to reduce cost of sales by 5% per year for 8 years.
The equipment is projected to be sold for salvage value estimated to be $500,000 at the end of year 8.
Being a relatively safe investment, the required rate of return of the project is 8%.
The equipment will be depreciated at a MACRS 7-year schedule.
Annual sales for year 1 are projected at $20 million and should stay the same per year for 8 years.
Before this project, cost of sales has been 60%.
The marginal corporate tax rate is presumed to be 25%.

Project B: Expansion into Europe

Expansion into Western Europe has a forecast to increase sales/revenues and cost of sales by 10% per year for 5 years.
Annual sales for the previous year were $20 million.
Start-up costs are projected to be $7 million and an upfront needed investment in net working capital of $1 million. The working capital amount will be recouped at the end of year 5.
Because of the higher European tax rate, the marginal corporate tax rate is presumed to be 30%.
Being a risky investment, the required rate of return of the project is 12%.

Project C: Marketing/Advertising Campaign

A major new marketing/advertising campaign, which will cost $2 million per year and last 6 years.
It is forecast that the campaign will increase sales/revenues and costs of sales by 15% per year.
Annual sales for the previous year were $20 million.
The marginal corporate tax rate is presumed to be 25%.
Being a moderate risk investment, the required rate of return of the project is 10%.

Requirements

Jennifer reiterates that your report is critical for the company to select the project that will bring the most value to shareholders. Your calculations and report should address these items for her and other stakeholders:

Apply computations of capital budgeting methods to determine the quality of the proposed investments.
Evaluate the capital projects using data analysis and applicable metrics that align to the business goal of maximizing shareholder value.
Select the best capital project, based on data analysis and evaluation, that will add the most value for the company.
Prepare an appropriate evaluation report for requestors, using sound research and data to defend your decision.

Deliverable Format

For this assessment, create two deliverables:

An Excel spreadsheet showing the required cash flow forecasts and capital budgeting tool calculations for each project. Use the same spreadsheet but create separate tabs for each project.
A report providing an analysis of the computations, the project selection decision, and justification for the decision, as well as its impact on the value of the firm. The project selection decision must have an analytical rationale to support it.

Report requirements:

Ensure written communication is free of errors that detract from the overall message and quality.
Use at least three scholarly resources.
Your report should be between 6 and 8 pages.
Use 12 point, Times New Roman. 5/15/2019
Evaluation of Capital Projects Scoring Guide
Evaluation of Capital Projects Scoring Guide
CRITERIA
NON-PERFORMANCE
BASIC
PROFICIENT
DISTINGUISHED
Apply computations of
capital budgeting methods
to determine the quality of
the proposed investments.
Does not apply
computations of capital
budgeting methods;
therefore, unable to
determine the quality of
the proposed
investments.
Applies computations of capital
budgeting methods but unable to
determine the quality of the
proposed investments because of
inaccurate computations or
misunderstanding of the data.
Applies
computations of
capital budgeting
methods to
determine the quality
of the proposed
investments.
Applies computations of capital budgeting
methods to determine the quality of the
proposed investments; uses all of the
capital budgeting tools to provide useful
information.
Evaluate the capital projects
using data analysis and
applicable metrics that align
to the business goals.
Does not analyze
capital projects using
data analysis and
applicable metrics that
align to the business
goals.
Analyzes the capital projects using
data analysis and applicable
metrics that align to the business
goals.
Evaluates the capital
projects using data
analysis and
applicable metrics
that align to the
business goals.
Evaluates the capital projects using data
analysis and applicable metrics that align
to the business goals; adds potential nonquantitative factors that could be
incorporated into decision making;
provides details and examples.
Select the best capital
project, based on data
analysis and evaluation,
that will add the most value
for the company.
Does not select a
capital project.
Selects a capital project; however,
selection is not based on sound
data analysis and evaluation.
Selects the best
capital project,
based on data
analysis and
evaluation, that will
add the most value
for the company.
Selects the best capital project, based on
data analysis and evaluation, that will add
the most value for the company; supports
with details and data.
Prepares an evaluation report to
requestors; however, it is based
on faulty research and data that
does not adequately defend
decision.
Prepares an
appropriate
evaluation report to
requestors using
sound research and
data to defend
decision.
Prepares an appropriate evaluation report
to requestors using sound research and
data to defend decision; justifies selection
decision with a summary of rationale and
illustrates its impact on the firm; uses
details and examples.
Prepare an appropriate
Does not prepare an
evaluation report for
evaluation report to
requestors, using sound
requestors.
research and data to defend
the decision.
https://courserooma.capella.edu/bbcswebdav/institution/MBA-FPX/MBA-FPX5014/190400/Scoring_Guides/u02a1_scoring_guide.html
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