BUS FPX 4070 Assessment 6 Evaluating Capital Expenditures
Phillip March 9, 2024 No Comments

BUS FPX 4070 Assessment 6 Evaluating Capital Expenditures

BUS FPX 4070 Assessment 6 Evaluating Capital Expenditures

Name

Capella university

BUS-FPX4070 Foundations in Finance

Prof. Name

Date

Problem 1: Capital Budgeting Criteria

Calculations

For Project A:

  • NPV = $35,823,289.78
  • IRR = 19.19%
  • MIRR = 17.08%

For Project B:

  • NPV = $35,336,432.09
  • IRR = 22.52%
  • MIRR = 16.68%

Conflicts between NPV and IRR

Conflicts can arise between NPV and IRR when evaluating independent projects. The project with a higher NPV should ideally be accepted due to reinvestment opportunities. Project A, despite having a lower IRR at 19.19%, yields a higher NPV of $35,823,289.78. Conversely, Project B boasts a higher IRR but a lower NPV. As explained by Finance Train, such conflicts stem from variations in cash flow patterns and project sizes. Smaller projects may exhibit higher IRRs but lower NPVs. Therefore, it’s prudent to prioritize the project with the superior NPV, although both projects remain viable investments.

BUS FPX 4070 Assessment 6 Evaluating Capital Expenditures

Problem 2: New Project Analysis

  1. Treatment of Feasibility Fees
    • Feasibility fees: $7,000
    • Treatment:
      • Feasibility fees $7,000
      • Cash $7,000
  2. Initial Investment Outlay
    • Calculation:
      • Machine + installation + net operating working capital
      • Cash outlay in year 0 = $100,000 + $10,000 + $5,000 = $115,000

References

Brigham, Eugene F., & Houston, Joel F. (2019). Fundamentals of Financial Management. Retrieved from https://capella.vitalsource.com/reader/books/9780357088562/epubcfi/6/36[%3Bvnd.vst.idref%3DM18]!/4/204/9:237[at%20%2Csho]

Finance Train. (n.d.). Corporate finance: Conflict between NPV and IRR. Retrieved from https://financetrain.com/conflict-between-npv-and-irr

FinanceKid. (2017, July 10). IRR vs MIRR – The problem with IRR explained. [Video file]. Retrieved from https://www.youtube.com/watch?v=f0IJegvYPKk

Johnk, David. (2015, March 5). How to calculate the payback period and the discount payback period on excel. [Video file]. Retrieved from https://www.youtube.com/watch?v=6NhAeD39QDA

Padhi, Michael. (2016, June 20). Calculating MIRR in excel. [Video file]. Retrieved from https://www.youtube.com/watch?v=9-7xRUtcPa0

BUS FPX 4070 Assessment 6 Evaluating Capital Expenditures