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.
This portfolio work project is about one of the basic functions of the finance manager: allocating capital to areas that will increase shareholder value. There are many uses of cash managers can select from, but it is essential that the selected projects are ones that add the most value to the company. This means forecasting the projected cash flows of the projects and employing capital budgeting metrics to determine which project, given the forecast cash flows, gives the firm the best chance to maximize shareholder value.
As a business professional, you are expected to:
You work as a finance manager for Drill Tech, Inc., a mid-sized manufacturing company located in Minnesota. Three capital project requests were identified as potential projects for the company to pursue in the upcoming fiscal year. In the meeting to discuss capital projects, the director of finance (and your boss), Jennifer Davidson, gives you a synopsis of the projects along with this question: Which one of these projects will provide the most shareholder value to the company?
She also tells you that other than what is noted in each project scenario, all other costs will remain constant, and you should remember to only evaluate the incremental changes to cash flows.
The proposed projects for you to review are as follows.
Project A: Major Equipment Purchase
Project B: Expansion into Europe
Project C: Marketing/Advertising Campaign
You are a finance manager at Drill Tech, Inc., who plays a major role in reviewing capital project requests.
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:
For this assessment, create two deliverables:
Related company standards:
PLEASE FOLLOW SCORING GUIDE
|Apply 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.||Evaluates the capital projects using data analysis and applicable metrics that align to the business goals; adds potential non-quantitative 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.||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.|
|Prepare an appropriate evaluation report for requestors, using sound research and data to defend the 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.|
The following resources may be useful in learning about time value of money (TVM) and how to calculate TVM in Excel:
Seeking Alpha. (2016, March 28). Does Warren Buffett use discounted cash flow? Retrieved from https://seekingalpha.com/instablog/5969741-the-value-pendulum/4868716-warren-buffett-use-discounted-cash-flow
Nockolas, S. (2015). How do you calculate payback period using Excel? Retrieved from https://www.investopedia.com/ask/answers/051315/how-do-you-calculate-payback-period-using-excel.asp
Sham, G. (n.d.). Capital budgeting: Wrapping it all up. Retrieved from https://www.investopedia.com/university/capital-budgeting/conclusion.asp
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