Overview
As a manager at Kayaks Unlimited, you have been asked to complete a capital budgeting analysis and advise the owner on which project should be selected. In addition to a traditional financial analysis, the owner has asked that you evaluate how AI-supported financial tools may influence investment decision-making.
The initial cash expenditure for Project A is $485,000, and for Project B is $175,000. Both investments are expected to provide cash flow benefits for the next four years. The annual expected cash inflows are $171,000 for Project A and $65,000 for Project B.
The desired rate of return is 12%.
Kayaks Unlimited is a small business, and its owner, Scott Jameso, is considering two project options for expanding production. He will be able to invest in only 1 of the following projects:
Project A: Invest in a new machine that will allow the company to fabricate 400 additional kayaks per year over a four-year period. The machine is expected to have a useful life of four years and has no salvage value.
Project B: Invest in a program to hire and train five additional employees. The training program will allow the production of 200 additional kayaks per year over a four-year period.Use the Capital Budgeting Proposal Spreadsheet to calculate the following:
Using the NPV tab, manually compute the net present value for each project. Round your computations to two decimal points.
Using the IRR tab, compute the approximate internal rate of return for each project. Round your computed rates to two decimal points.Use the Capital Budgeting Proposal Spreadsheet to calculate the following:
Using the NPV tab, manually compute the net present value for each project. Round your computations to two decimal points.
Using the IRR tab, compute the approximate internal rate of return for each project. Round your computed rates to two decimal points.