Great day! Hope all is well with you. Needing assistance with the project I discussed previously. Please see below and my business info and will attach additional info as well. Please be at least 10 pages double spaced and word document. margin 1" all over and new times roman font size 12. My business name is Deals With Angie Team and we are purchasing a rental property in Columbia, SC.
- Purchase Price: $250,000
- Down Payment (20%): $50,000
- Loan Amount (Mortgage): $200,000
In a capital budgeting analysis, the purchase price is part of your initial investment. However, you would typically include other acquisition costs as well:
| Item | Amount |
|---|---|
| Purchase Price | $250,000 |
| Closing Costs | $5,000 |
| Inspection | $500 |
| Initial Repairs/Renovations | $10,000 |
| Total Initial Investment | $265,500 |
:
Integrated Capital Budgeting Project
INTEGRATED CAPITAL BUDGETING PROJECT
To illustrate the steps in Capital Budgeting Analysis, students can use a hypothetical example of the purchase of an asset such as a truck to be used by your company real or fictitious. Your company plans to acquire the asset, use it for 5 years and then sell it for fair value on the resale market. It plans to use the sales proceeds as a down payment on a more modern replacement. It estimates the WACC at 10.00%. Please limit your narrative and analysis to 10 pages using current APA citation guidelines and the following outline:
Preparing a Capital Budgeting Analysis-Suggested Outline:- Step 1: Determine the total amount of the investment. ...
- Step 2: Determine the cash flows the investment will return. ...
- Step 3: Determine the residual/terminal value. ...
- Step 4: Calculate the annual cash flows of the investment. ...
- Step 5: Calculate the NPV of the cash flows.
- Step 6: Run a sensitivity analysis
The funds available to be invested in a business either as equity or debt, also known as capital, are a limited resource. Accordingly, managers must make careful choices about when and where to invest capital to ensure that it is used wisely to create value for the firm. Capital Budgeting is the process of making these decisions. [Please see Chapter 17, pp. 520-564]
This is a very powerful financial tool with which the investment in a capital asset, a new project, a new company, or even the acquisition of a company, can be analyzed and the basis (or cost justification) for the investment defined and illustrated to relevant stakeholders.
*Step 6: Sensitivity Analysis-Perform by Changing the WACC to 8%; 10%; and 12% as follows:
Assume WACC at 8%. Therefore, [Yr1=1.08; Yr2=1.17; yr3=1.26; Yr4=1.36; Yr5=1.47]
Assume WACC at 10%. Therefore, [Yr1=1.10; Yr2=1.12; yr3=1.33; Yr4=1.46; Yr5=1.61]
Assume WACC at 12%. Therefore, [Yr1=1.12; Yr2=1.25; yr3=1.40; Yr4=1.57; Yr5=1.76]
NPV Calculation with initial Investment of $100,000 and Annual cashflow of $25,000 and WACC at10%:
1) 25,000/1.10=22,727.27
2)25,00/1.12=22,321.43
3)25,000/1.33=18,796.99
4)25,000/1.46=17,123.29
5) 25,000/1.61=15,527.95
NPV: 100,000-96,496.93 = (3,503.07)*
*This project should be rejected at a WACC of 10% because the NPV is -$3,503.07
Watch this Capital Budgeting Video: