Capital Budgeting: Analysis and Evaluation of Projects

CAPITAL BUDGETING 1
CAPITAL
BUDGETING

CAPITAL BUDGETING 2
Part A:
Part i:
The following table shows the relevant calculations:
(Amounts in AUD millions)
Particu
lars
201
8-19
201
9-20
202
0-21
202
1-22
202
2-23
202
3-24
202
4-25
202
5-26
202
6-27
202
7-28
202
8-29
Year 0 1 2 3 4 5 6 7 8 9 10
Cash
outflo
w:
Cost of
factory
refurbis
hment
and
technol
ogy
upgrad
e
1
2.25
Trainin
g costs 0.53
Extra
mainte
nance
0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.15

CAPITAL BUDGETING 3
and IT
costs
Presen
t value
of the
cash
outflo
ws
-
12.7
8
-
0.15
-
0.15
-
0.15
-
0.15
-
0.15
-
0.15
-
0.15
-
0.15
-
0.15
-
0.15
Cash
inflow:
Salvage
value
of plant
and
equipm
ent 0.28
Savings
in
power
usage 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91
Savings
in 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42 0.42

CAPITAL BUDGETING 4
water
costs
Savings
in
labour 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75
Salvage
value
of
anticipa
ted
technol
ogy 1.00
Presen
t value
of cash
inflow 0.28 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 3.08 4.08 2.92
Net
Cash
inflow
-
12.5
0 2.93 2.93 2.93 2.93 2.93 2.93 2.93 2.93 2.93 3.93
PV
Factor 1.00 0.83 0.69 0.58 0.48 0.40 0.33 0.28 0.23 0.19 0.16
-
12.5 2.45 2.04 1.70 1.42 1.18 0.98 0.82 0.68 0.57 0.64