Chapter 8 Capital Budgeting Process and De Capital Budgeting Process and Techniques minicase two alternative investment proposals. The first proposal calls for a major renovation of the company's manufacturing facility. The second involves replacing just a few obsolete pieces of equipment in the facility. The company will choose one project or the other this year, but it will not do both. The cash flows associated with each project appear below and the firm discounts project cash flows at 15 percent. Contact Manufacturing, Inc., is considering 3. Calculate the internal rate of return (IRR) for which project would you recommend acceptance? of each project, and based on this criteria, for which project would you recommend acceptance? 4. Calculate the profitability index (PI) of each project, and based on this criteria, for which project would you recommend acceptance? 5. Overall, you should find conflicting rec- ommendations based on the various cri- Year Renovate Replace teria. Why is this occurring? 0 -$9,000,000 6. Chart the NPV profiles of these projects. -$2,400,000 3,000,000 2,000,000 Label the intersection points on the X 2. 3,000,000 and Y axis and the crossover point. 800,000 3 3,000,000 200,000 7. Based on this NPV profile analysis and 4. 3,000,000 200,000 assuming the WACC is 15%, which 5 3,000,000 200,000 project is recommended? Why? 8. Based on this NPV profile analysis and Assignment assuming the WACC is 25%, which proj- 1. Calculate the payback period of each proj- ect is recommended? Why? ect, and based on this criteria, for which 9. Discuss the important elements to con- project would you recommend accep- sider when deciding between these two tance? projects. 2. Calculate the net present value (NPV) of each project, and based on this criteria, 1