Capital Budgeting Project

Running head: CAPITAL BUGETING PROJECT
CAPITAL BUGETING PROJECT
Name of the Student:
Name of the University:
Author Note

1CAPITAL BUGETING PROJECT
Conclusion and Recommendation
This capital budgeting project report calculates the cost of capital and capital budget
from the given information. While, analysing the cost of capital, which is necessary to make
the capital budget for the new project of the company. While the capital budget, which is the
process to determine whether the investment are worth the funding, or not. The cost of capital
and capital budgeting of the given project, the report finds that the market value of the bank
loan is $ 558000 with weightage of 30.7% in the capital. The market value of mortgage loans
of the firm is $ 270000 with the weightage of 14.85% in the total cost of capital. The before
tax cost of the corporate bond is 5.53% and the market value of the corporate bond is $
169801 with the weightage of 9.34% of the total cost of capital. The market value of the
ordinary share is $ 568400 while the cost of the ordinary share is $ 112000 and this have the
weight of 31.27% in the total cost of capital. Lastly, the preference shares have the value of $
251550 and the weightage on total share capital is 13.84%. The total of all the bonds and
shares is $ 1817750 and company is liable for the tax at the tax of 30%. This results the
weighted average cost of capital of the firm as 6.28%.
On other hand, the firm spends $ 25 in the feasibility study of the new machine that
company is planning to buy. The feasibility report shows that the machinery will have the 5
years as the useful life. The salvage value of the machine is expected to be $ 50, which the
firm get in the end of the 5 years estimated life of the machine. The cost of the machinery
including the purchased and installation is $ 400. From the above information of the
feasibility report the expected depreciation of the machine will be $ 160 in first year, $ 96 in
the second year, $ 57.6 year, $ 34.6 in the fourth year and $ 20.7 in the last and fifth year.
After considering the all other information of the feasibility report this report recommends
the firm to accept the project. As this report finds that the Net present value which shows the
difference between cash inflow and cash outflow of the project is increasing in the years to