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.