Enter your calculated values in this table for Problem Set 1.

Project Options	ALPHA	BETA	GAMMA
Payback Period
Average Accounting Return
Internal Rate of Return
Net Present Value
Profitability Index

Which project should be eliminated prior to NPV and PI analysis? __________

Which project would be selected if we needed our cash back ASAP? __________

The Average Accounting Return Understates actual cash flow for option __________

Which option maximizes profit? __________

What rate (%) is the crossover point for the two potential options? __________

INSTRUCTIONS AND DATA BEGIN ON NEXT PAGE

Requirements:

1. DATA are presented below for three (3) possible Capital Investments: Alpha, Beta, or Gamma.

Calculate the CAPITAL OUTLAY (investment required) for each option with consideration to the NOTES section. There is information in NOTES that may increase the capital outlay above the COST BASIS of the project.

2. PRO FORMA CASH FLOW PROJECTIONS are listed below. These are investment specific and the NOTES may provide a necessary adjustment to these projections. Determine the adjusted annual net cash flow for each project.

3. Once you have completed the above, input your calculations into the Capital Budgeting Problem Set 50 pts working file located in the Content folder Chapter 8: Capital Budgeting. Enter your values in the table on page 1 of this document and submit prior to the due date and time. You have two submission attempts.

Common errors:

• Incorrect calculation of CAPITAL OUTLAY.
• Not adjusting cash flows for some projects due to information in NOTES.
• Incorrect Depreciation used in Average Accounting Return.
• Incorrect Crossover calculation

DATA CAPITAL PROJECT UNADJUSTED OPTIONS COST BASIS ADJUSTMENTS: NOTES USEFUL LIFE HURDLE SALVAGE VALUE ATI TAX RATE THE END OF YEAR 5 RATE ALPHA $18,000.00 Working Capital loan of $2,000 to be incorporated into CAPITAL OUTLAY calculation. This loan is scheduled to be released at the end of year 5: Loan paid off and available (released) for reinvestment elsewhere. - 5yr 21.12% 10% of Unadjusted Cost Basis 20% BETA $26,000.00 Impact fees of $4,000 to be capitalized on financial statements but treated as a cash outlay at time of Beta purchase. Add amount to CAPITAL OUTLAY calculation. 5yr 5 yr 21.12% 21.12% 10% of Unadjusted Cost Basis 20% GAMMA $18,000.00 Estimated road repair in year three (3) of $4,000 to be deducted from year 3 cash flow. 5 yr 21.12% 10% of Unadjusted Cost Basis 20% PRO FORMA CASH FLOW PROJECTIONS ALPHA BETA GAMMA Capital Project Options: Annual pro forma cash flow Year 1 Year 2 Year 3 Year 4 Year 5 10,000 10,000 8,000 4,000 3,000 8,000 9,000 10,000 8,000 6.000 9,000 8,000 14,000 1,000 6.000