complete the attached “Capital Budgeting Template” by doing the following:

1. Calculate the net cash flow that should be used for each year in the discounted cash

flow analysis.

2. Calculate the net present value (NPV) of this project using a discount rate equal to

the company’s weighted average cost of capital. Round all dollar amounts to the

nearest whole dollar.

3. Calculate the expected yield on the project using the discounted cash flow internal

rate of return (IRR) method. Round all dollar amounts to the nearest whole dollar.

4. Calculate the accounting rate of return for this project.

5. Calculate the unadjusted payback period. State your answers in years and months.

Additional Information

Entrepreneur D plans to retire from professional practice and cease all business activities nine years from now. The plan for the garden tool is to produce and sell it for eight years

and then sell the patent and production rights to a national company. Entrepreneur D has negotiated a tentative lease on a building that is well suited for this manufacturing process. The building must be remodeled to meet manufacturing needs, and then it must be restored to its original configuration at the end of the eight-year lease. At that time Entrepreneur D will be able to sell some of the non-specialized equipment (e.g., forklifts) for small salvage values.

• Building remodeling and new equipment purchases will require a front-end investment. The remodeling and equipment costs will be capitalized and depreciated over the eight-year period as one depreciation calculation using straight line depreciation. Realizable salvage value from disposing of the equipment at the end of eight years is estimated at approximately $60,000. There is no salvage value for the remodeling improvements.

The remodeling cost is given on the template in your individualized dataset.

• Additional working capital will be required for business operations. The working capital required is given on the template in your individualized dataset.

• Estimated annual cash receipts from tool sales are forecasted for the eight years of expected operations. The expected cash receipts are given on the template in your individualized dataset.

• Estimated cash expenses for materials, salaries, supplies, utilities, and other cash expenses are projected for each of the eight years of expected operations. The expected cash expenses are given on the template in your individualized dataset.

• The lease on the building requires that it be restored to its original configuration at the end of the expected eight years of operation. The estimated restoration cost s number is given on the template in your individualized dataset.

• The working capital tied up in this project will become available for other types of investments at the end of the eight-year period.

Entrepreneur D has asked you to assume a 12% applicable weighted average cost of capital.

Entrepreneur D has also asked you to assume a combined federal and state income tax rate. The tax rate is given on the template in your indvidualized dataset.