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Capital Budgeting Methods for Project Evaluation - Business Case Study 2

Prepare base case spread sheet model and three sensitivities for the proposed project and explain project evaluation methods used and assumptions made.

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Added on  2023-06-03

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This report evaluates the feasibility of a new project for Pinto using capital budgeting methods such as NPV, IRR, PBP, and profitability index. The report includes sensitivity tests and risk assessments to determine the project's feasibility under different scenarios. The conclusion recommends that Pinto should invest in the new plant and equipment, but also highlights the importance of considering assumptions on projected sales volume and prices.

Capital Budgeting Methods for Project Evaluation - Business Case Study 2

Prepare base case spread sheet model and three sensitivities for the proposed project and explain project evaluation methods used and assumptions made.

   Added on 2023-06-03

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Assessment 3: Business Case Study 2
Capital Budgeting Methods for Project Evaluation - Business Case Study 2_1
EXECUTIVE SUMMARY
Capital budgeting can be used to evaluate the feasibility of a new project such as
investment in new equipment, plant or replacement of a product line, machine etc.
(Accounting Explained, 2017).
There are several methods that can be used in capital budgeting. These methods
include the payback period (or PBP), discounted payback period, the internal rate of
return (or IRR), the net present value (or NPV) and profitability index. These methods
are quantitative and may be used in a combination or alone.
1
Capital Budgeting Methods for Project Evaluation - Business Case Study 2_2
TABLE OF CONTENTS
EXECUTIVE SUMMARY.........................................................................................................................1
TABLE OF CONTENTS...........................................................................................................................2
CHAPTER 1 : CAPITAL BUDGETING..................................................................................................3
1.1 Introduction – Project Evaluation Methods.................................................................................3
1.2 Discount Rate.................................................................................................................................3
1.3 Assumptions....................................................................................................................................4
1.4 Risk Assessment -Base Scenario................................................................................................5
1.5 Project Feasibility under Base Scenario.....................................................................................5
1.6 Risk Assessment -Sensitivity Tests.............................................................................................6
1.7 Project Feasibility under Sensitivity One.....................................................................................6
1.8 Project Feasibility under Sensitivity Two.....................................................................................6
1.9 Project Feasibility under Sensitivity Three..................................................................................6
1.10 Conclusion and Recommendations...........................................................................................7
References...................................................................................................................................................8
2
Capital Budgeting Methods for Project Evaluation - Business Case Study 2_3

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