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E43 Capital Budgeting Decisions 3 Learning Objectives 4 51. Understand how to use EXCEL Spreadsheet 6 (a) Develop proforma Income Statement Using Excel Spreadsheet 7 (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem-solving and critical thinking skills and make long-term investment decisions 11 1) Life Period of the Equipment4 years 12 2) New equipment cost 13 3) Equipment ship & install cost 14 4) Related start up cost 15 5) Inventory increase 16 6) Accounts Payable increase 17 7) Equip. salvage value before tax 8) Sales for first year (1) 200,000 5% $ (200,000) 9) Sales increase per year $ (35,000) 10) Operating cost (60% of Sales) $(5,000)(as a percent of sales in Year 1) $(120,000) -60% $ 25,000 11) Depreciation (Straight Line)/YR $(60,000) 21% 10% $5,000 12) Marginal Corporate Tax Rate (T) $15,000 13) Cost of Capital (Discount Rate) 19 20 21 ESTIMATING Initial Outlay (Cash Flow, CFo, T-0) CF0 CF1 CF2 CF3 CF4 23 24 Year 25 Investments: 26 1) Equipment cost 27 2) Shipping and Install cost 28 3) Start up expenses 29 Total Basis Cost (1+2+3) 30 4) Net Working Capital 31 Total Initial Outlay E43 Capital Budgeting Decisions 3 Learning Objectives 4 51. Understand how to use EXCEL Spreadsheet 6 (a) Develop proforma Income Statement Using Excel Spreadsheet 7 (b) Compute Net Project Cashflows, NPV, and IRR (c) Develop problem-solving and critical thinking skills and make long-term investment decisions 11 1) Life Period of the Equipment4 years 12 2) New equipment cost 13 3) Equipment ship & install cost 14 4) Related start up cost 15 5) Inventory increase 16 6) Accounts Payable increase 17 7) Equip. salvage value before tax 8) Sales for first year (1) 200,000 5% $ (200,000) 9) Sales increase per year $ (35,000) 10) Operating cost (60% of Sales) $(5,000)(as a percent of sales in Year 1) $(120,000) -60% $ 25,000 11) Depreciation (Straight Line)/YR $(60,000) 21% 10% $5,000 12) Marginal Corporate Tax Rate (T) $15,000 13) Cost of Capital (Discount Rate) 19 20 21 ESTIMATING Initial Outlay (Cash Flow, CFo, T-0) CF0 CF1 CF2 CF3 CF4 23 24 Year 25 Investments: 26 1) Equipment cost 27 2) Shipping and Install cost 28 3) Start up expenses 29 Total Basis Cost (1+2+3) 30 4) Net Working Capital 31 Total Initial Outlay

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