You have recently assumed the role of CFO at your company. The company's CEO is looking to expand...

Question

You have recently assumed the role of CFO at your company. The company's CEO is looking to expand its operations by investing in new property, plant, and equipment. You are asked to do some capital budgeting analysis that will determine whether the company should invest in these new plant assets.
Company: Apple
download the company's most recent 10-K report,
The parameters for the project deliverable are as follows.
· The firm is looking to expand its operations by 10% of the firm's net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm's balance sheet.)
· The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment's cost.
· The annual EBIT for this new project will be 18% of the project's cost.
· The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. Use 35% as the tax rate in this project.
· The hurdle rate for this project will be the WACC that you are able to find on a financial website, such as Gurufocus.com. If you are unable to find the WACC for a company, contact your instructor. He or she will assign you a WACC rate.
5 Page Paper:
· Your calculations for the amount of property, plant, and equipment and the annual depreciation for the project
· Your calculations that convert the project's EBIT to free cash flow for the 12 years of the project.
· The following capital budgeting results for the project
· Net present value
· Internal rate of return
· Discounted payback period.
· Your discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project
Once again, you may embed your Excel spreadsheets into your document. Be sure to follow APA standards for this project.
Grading Ru
ic:

    Possible
Points
    Criteria and Point Range

Calculation of Cost of Project

    18
    0-5
    6-9
    10-14
    15-18


    All calculations are inco
ect, or not presented.
    Calculation of PP&E, salvage value, or annual depreciation is inco
ect.
    Cost of PP&E is mostly co
ect with some minor calculation e
ors.
    Cost of Property, plant and Equipment and annual depreciation co
ectly calculated.

Estimation of Cash Flows

    27
    0-13
    14-18
    19-23
    24-27


    All aspects of the cash flow calculation are inco
ect, or not presented.
    Significant, but identifiable e
ors are presented in the calculation to convert income to cash flows..
    Cash flows are properly converted from accrual-based net income to cash flows from the project, with minor e
ors.
    Cash flows are properly converted from accrual-based net income to cash flows from the project.

Capital Budgeting
Analysis

    27
    0-13
    14-18
    19-23
    24-27


    All of the capital budgeting calculations are inco
ect, or not presented.

    Two e
ors noted in the NPV, IRR, and Discounted Payback Period calculations.
    One e
or noted in the NPV, IRR and Discounted payback period calculations.
    All of the NPV, IRR, and Discounted Payback period calculations are co
ect.

course-project-finance-rhc3w0fi.docx

Shakeel · Accepted Answer

Introduction
A project needs huge capital outflow followed by cash inflow till the life of the project. Since, project so undertaken is generally having long term life and involves infusion of huge capital and resources, its financial feasibility is imperative for the successful completion of project. In the words of Kusuma (2012), “the financial feasibility analysis is  a  systematic evaluation  of  capital expenditure in  relation to the  expected income  for  a  particular  purpose of  an investment  decision”. There are several techniques to assess the financial feasibility of project. Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), Payback period, Discounted Payback period etc. are some of the major capital budgeting tools. 
In this paper, the financial appraisal of a project undertaken by the Apple Inc is assessed. Apple Inc intends to expand its operation and hence, it needs to invest in Property, plant and Equipments. The life of the Invested asset is expected to be 12 years and therefore, the life of the project would also be 12 years. The relevant information regarding the Investment, Earnings, Costs and Weighted Average Cost of Capital and others are collected from the company’s Annual report and other relevant sources. Once, the free cash flow for next 12 years are estimated, three major capital budgeting tools – Net Present Value (NPV), internal rate of return (IRR) and Discounted Payback period are used to evaluate the project for its financial feasibility.
Calculation of Investment and depreciation
It is estimated that company needs to invest 10% of the firm's net property, plant, and equipment as on Dec 2019. Therefore, the most recent 10-k report is taken and relevant information is gathered. 
The property, plant and equipment	=	$37,378 million
Investment in project	=	0.10*37,378
			=	$3,737.80
Life of the project	=	12 years
Salvage value of Plant, machinery and equipment	=	0.05*3,737.80
							=	$186.89 million
Since, depreciation is calculated through St. Line method,
Depreciation per year	=	($3,737.80 – 186.89) / 12
			=	$295.91 million.
Projection of Free Cash Flow
Since the annual EBIT of the project is 18% of the project’s cost
The annual EBIT of the project	=	0.18*3,737.80
					=	$672.80
The change in Net working capital each year is assumed to be ZERO
It is also assumed that during the project, company doesn’t make any capital expenditure.
The applicable tax rate is taken as 35%.

You have recently assumed the role of CFO at your company. The company's CEO is looking to expand its operations by investing in new property, plant, and equipment. You are asked to do some capital...

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