Capital budgeting - Assignment PDF

RUNNING HEAD: CAPITAL BUDGETING
SIMULATION ANALYSIS
Capital budgeting
Monte Carlo
Name of the author-

Capital budgeting 2
Table of Contents
References.................................................................................................................................................12

Capital budgeting 3
Answer to question no-1
Weighted average cost of
capital
Particulars Amount
Weights
(A)
Cost of capital
(B) A*B
Equity
$
5,000,000.00
0.5
9 15.25% 8.97%
Debt
$
3,500,000.00
0.4
1 6.82% 2.81%
Total
$
8,500,000.00
1.0
0
11.78
%
The WACC of CFCC is calculated at 11.78% by considering the calculated cost of equity and
after tax cost of debt (Dornheim, et al. 2016).
Answer to question no- 2
The payback period, NPV, IRR, MIRR and ARR are the capital budgeting techniques that are
used to evaluate an investment proposal from different perspectives.
In case of CFCC, if economy is in state of recession then the project of new assembly will give
following outcome (Dewachter, et al. 2015).
NPV ($312,646.32)
IRR -1.74%
MIRR 4%
PI $ 0.73
ARR $ 0.08
PBP More than 5 years
When economy is in slow growth state:
NPV $31,017.55
IRR 12.88%
MIRR 12%
PI $ 1.03
ARR $ 0.18
PBP 4.16 years
When economy is in strong growth state: