Assignment Instructions
As a scholar, practitioner, and leader in corporate finance, you may find yourself conducting financial analyses for various business settings. You may also find that friends and family have questions about business finance. Consider the following example.
Assessment Prep
Imagine you have a relative who knows you have knowledge and experience conducting financial analyses for various situations. The relative wants your advice regarding an investment they are considering. This person owns a furniture company that makes 2 types of furniture: custom-made furniture for consumers and standard furniture for furniture stores.
In the past few years, sales in both these segments have shown an increase of 9% annually. Your relative is considering buying 2 types of manufacturing equipment. One piece is custom furniture, and another is standard furniture. The goal is to optimize productivity while being able to supply both markets. Each type of equipment requires capital in the range of $120,000. Such equipment is generally depreciated over a 5-year time frame.
The relative applied for a loan of $240,000 from a local bank. However, they are not confident that he will get the loan for the entire $240,000, and there are questions about the interest rate they will be paying. Based on current financial obligations, they are confident the bank will loan at least $120,000 with an interest rate of 12% to 15%.
Review the tables included in the Capital Budgeting Financials document. Refer to purchasing custom equipment as Project C and standard equipment as Project S.
Assessment Deliverable
Write a 1,050- to 1,400-word capital budget analysis that addresses the following:
- Compare the implications of using the internal rate of return (IRR) versus the net present value (NPV) when deciding on Project C and Project S.
- Explain whether Project S and Project C are mutually exclusive projects.
- Explain your recommendations if your relative gets approval for only a $120,000 loan from the bank. Include a rationale.
- Explain your recommendations if your relative gets approval for a $240,000 loan from the bank. Include a rationale.
- Summarize how you would use the Net Present Value chart above if you are uncertain of the interest rate being given.
Support your analysis with scholarly resources.
Format citations and references using current APA guidelines.
Submit your assessment.