BUS 630 Case Study #2 Spring II 2024
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University of La Verne College of Business BUS 630 – Corporate Finance Spring II 2024 Case Study #2 Post your work to the Case #2 Blackboard file folder, due Sunday May 5 at Midnight. This Case work represents 20% of your total course grade. All analysis work should be in the spreadsheet file provided. Use the spreadsheet template provided in Case #2 file folder. Capital Budget Risk Analysis Part I:
Based on the inputs below prepare a capital budget analysis for this Base Case using the Net Present Value, Internal Rate of Return, Profitability Index and Payback in Years to determine whether the project is feasible. All your work should be in a spreadsheet file. In addition to your capital budget analysis, prepare a risk analysis for scenario and sensitivity (Part II). In your opinion this is an investment to approve. A simple Yes or No will be a sufficient answer. Project Inputs: WACC – Determine the cost of capital for your discounted cash flow. Debt to Assets is 65% Interest rate on the debt is 9.00% Current Risk-Free Rate is 4.61% Current Market Premium Rate is 8.50% The firm’s beta is 1.35
Bus 630 Case 2: Hasse 2 Project Investment Outlay, Year 0 - $700,000 Project Investment Life – 7 years Project Depreciation - $100,000 / year Project Salvage Value - $55,000 Working Capital Base of Annual Sales – 9% Expected inflation rate per year, Selling Price Per Unit – 3.00% Expected inflation rate per year, Variable Cost per unit – 2.50% Expected inflation rate per year, Fixed costs per year – 2.50% Project Tax Rate – 25% Units sold per year – 40,000 Selling Price per Unit, Year 1 - $45.00 Fixed operating costs per year excluding depreciation - $75,000 Manufacturing costs per unit (variable costs), Year 1 - $35.00 Part II:
Based on your Base Analysis please complete a risk analysis in a spreadsheet format. Create a separate spreadsheet tab with the scenario and sensitivity analysis. Scenario Analysis
: Units Sold per Year / Probability Base Case: 40,000 / 55% Best Case: 48,000 / 20% Worst Case: 32,000 / 25% Sensitivity Analysis
: Percentage Changes: +/- 10%, 20%, 30% Sensitivity Variables (3): Selling Price per unit / Variable cost per unit / Fixed cost How does this risk analysis affect Net Present Value? Please show the calculations.
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Related Questions
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($billions)
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1
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3
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Cumulative CF
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1
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16,000
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