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Capital Budgeting and Business Valuation: FIN 505 – FALL 2018

Final individual assignment covering capital budgeting and business valuation topics, consisting of 2 mini case studies. The assignment should be submitted via email as a PDF or DOC file, along with an Excel spreadsheet. The assignment should be completed within 3 to 4 hours.

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Added on  2023-06-03

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This article discusses capital budgeting and business valuation for FIN 505 – FALL 2018. It covers topics such as payback period, net present value, internal rate of return, cost of capital, free cash flow, terminal value, enterprise value, and share price.

Capital Budgeting and Business Valuation: FIN 505 – FALL 2018

Final individual assignment covering capital budgeting and business valuation topics, consisting of 2 mini case studies. The assignment should be submitted via email as a PDF or DOC file, along with an Excel spreadsheet. The assignment should be completed within 3 to 4 hours.

   Added on 2023-06-03

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1
FIN 505 – FALL 2018 – Final Individual Assignment
Capital Budgeting and Business Valuation: FIN 505 – FALL 2018_1
2
Answer to Case A: Capital Budgeting
Particulars Years Lathe A Lathe B
Cash Flows
Initial Investment 0 $ (660,000) $ (360,000)
Cash Inflow 1 $ 128,000 $ 88,000
Cash Inflow 2 $ 182,000 $ 120,000
Cash Inflow 3 $ 166,000 $ 96,000
Cash Inflow 4 $ 168,000 $ 86,000
Cash Inflow 5 $ 450,000 $ 207,000
Cost of Capital: 13%
Answer 1: Payback Period
Lathe A
Years Cash Flows Cumulative CF
Initial Investment 0 $ (660,000) $ (660,000)
Cash Inflow 1 $ 128,000 $ (532,000)
Cash Inflow 2 $ 182,000 $ (350,000)
Cash Inflow 3 $ 166,000 $ (184,000)
Cash Inflow 4 $ 168,000 $ (16,000)
Cash Inflow 5 $ 450,000 $ 434,000
Payback Period of Lathe A 4.04
4 years 15 days
(Firer, 2012)
Lathe B
Years Cash Flows Cumulative CF
Initial Investment 0 $ (360,000) $ (360,000)
Cash Inflow 1 $ 88,000 $ (272,000)
Cash Inflow 2 $ 120,000 $ (152,000)
Cash Inflow 3 $ 96,000 $ (56,000)
Cash Inflow 4 $ 86,000 $ 30,000
Cash Inflow 5 $ 207,000 $ 237,000
Payback Period of Lathe A 3.65
4 years 237 days
Answer 2:
Lathe A Net Present Value
Years Cash Flows PVF @ 13% PV @ 13 %
Initial Investment 0 $ (660,000) 1.000 $ (660,000)
Cash Inflow 1 $ 128,000 0.885 $ 113,274
Cash Inflow 2 $ 182,000 0.783 $ 142,533
Capital Budgeting and Business Valuation: FIN 505 – FALL 2018_2
3
Cash Inflow 3 $ 166,000 0.693 $ 115,046
Cash Inflow 4 $ 168,000 0.613 $ 103,038
Cash Inflow 5 $ 450,000 0.543 $ 244,242
NPV Lathe A $ 58,132.88
(Deegan, 2013)
Lathe B Net Present Value
Years Cash Flows PVF @ 13% PV @ 13 %
Initial Investment 0 $ (360,000) 1.000 $ (360,000)
Cash Inflow 1 $ 88,000 0.885 $ 77,876
Cash Inflow 2 $ 120,000 0.783 $ 93,978
Cash Inflow 3 $ 96,000 0.693 $ 66,533
Cash Inflow 4 $ 86,000 0.613 $ 52,745
Cash Inflow 5 $ 207,000 0.543 $ 112,351
NPV Lathe B $ 43,483.24
Lathe A Internal Rate of Return
Years Cash Flows
PVF @
15% PV @ 15 %
PVF @
20% PV @ 20%
Initial
Investment 0
$
(660,000) 1.000
$
(660,000) 1.000
$
(660,000)
Cash Inflow 1
$
128,000 0.870
$
111,304 0.833
$
106,667
Cash Inflow 2
$
182,000 0.756
$
137,618 0.694
$
126,389
Cash Inflow 3
$
166,000 0.658
$
109,148 0.579
$
96,065
Cash Inflow 4
$
168,000 0.572
$
96,055 0.482
$
81,019
Cash Inflow 5
$
450,000 0.497
$
223,730 0.402
$
180,845
$
17,854.27
$
(69,016)
IRR Lathe
A 16.03%
(Brigham and Houston, 2012)
Lathe B Internal Rate of Return
Year
s
Cash
Flows
PVF @
15% PV @ 15 %
PVF @
20%
PV @
20%
Initial
Investment 0
$
(360,000) 1.000
$
(360,000) 1.000
$
(360,000)
Cash Inflow 1
$
88,000 0.870
$
76,522 0.833
$
73,333
Capital Budgeting and Business Valuation: FIN 505 – FALL 2018_3

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