Lab 1 Objectives e Compute present value and future value of potential cash flows e Applyv the capital budgeting techniques to select projects that deliver the highest combined estimated return on investment. Section One - Time Value of Money Present Value = Future Value / (1 + interest rate) Number of Periods Future Value = Present Value x (1 + interest rate) Number of Periods Scenario: You are offered $25,000 now or $30,000 five years from now with a simple annual rate of 4.5% (0.045). Present Value Future Value | 1 2 3 4 | ; B. $30,000 Calculate and provide the answers to both A and B. Once complete, think about the following: Which option would you choose and why? Section Two - Capital Budgeting PBF Studios Theme Park is preparing its Capital Budget for the year and has encountered a dilemma. Six managers in the park have all submitted their list of requests for Capital Expenditure (CAPEX) authorizations. The total amount of CAPEX Budget for the year has been set at $15,500,000. The requests submitted for all six managers add up to $23,450,000. The CEO of PBF Studios has given an assignment to the Chief Financial Officer (you) to develop a procedure for evaluating each project's estimated return on investment and based on the results recommend the CAPEX requests that should be approved for the year. You recently attended a seminar in Winter Park, Florida where you learned about three techniques for evaluating and selecting capital projects. , this method calculated the amount of time needed for the projected net cash flows to recover or \"pay back\" a project's initial investment. The project requiring the least amount of time to earn back its initial investment, \"pay back period\PBF Studios CAPEX Requests Cash Balance McCall Net Worth | Sheet Bar n' Liquidity Roundup Budget Profitability Arcade Grill Water Park Show Bullet Train Drop Initial Investment $(3,500,000) | $(2,000,000) | $(2,200,000) | $(4,350,000) | $(5,400,000) | $(6,000,000) Cash Flows 711,000 500,000 660,000 1,495,000 1,095,000 1,121,000 1,043,000 500,000 660,000 1,124,200 1,124,200 1,880,500 1,012,000 750,000 660,000 1,153,400 1,153,400 2,390,000 1,255,000 750,000 660,000 1,362,500 1,182,600 2,499,500 1,283,000 1,000,000 660,000 1,011,800 1,211,800 2,509,000 Capital Budgeting Methods 3.58 3.33 3.33 3.22 4.70 3.24 $534,551 $639,943 $367,170 $481,243 ($933,189) | $1,858,125 14.2% 19.2% 15.2% 13.4% 2.2% 18.9% Using the information above, answer the following questions: a. Basedon , Which Investment would you choose? b. Based on , Which Investment would you choose? c. Basedon , which Investment would you choose? d. Given PBF Studios' CAPEX Budget of $15,500,000: Which requests would you recommend be approved and why? What is the total amount of the initial investments of the approved projects? v GROUP 1 The Time Value of Money v QUESTION 1.1 A. Future value of $25,000 is: about $24,073 $30,000 about $31,155 $25,000 v QUESTION 1.2 B. Present value of $30,000 is: about $31,155 $25,000 $30,000 Net Worth Arcade Balance Sheet Bar n Grill Liquidity Water Park Cash McCall Roundup Show Budget Bullet Train v QUESTION 2.2 4b. Based on NPV calculations, which Investment would you choose? Net Worth Arcade Balance Sheet Bar n Grill Liquidity Water Park Cash McCall Roundup Show Budget Bullet Train Profitability Drop v/ QUESTION 2.3 4c. Based on IRR calculations, which Investment would you choose? Net Worth Arcade O Balance Sheet Bar n Grill Liquidity Water Park Cash Mccall Roundup Show Budget Bullet Train Profitability Drop QUESTION 2.4 Given PBF Studio's CAPEX Budget off $15,500,000 - which requests for capital spending would you recommend be approved? Approve all requests O Approve all requests with a positive Net Present Value O Approve all requests that fit within the budget provided they have a positive NPV QUESTION 2.5 What is the total investment amount (capital expenditures) for the year based on the projects you recommended? O $13,700,000 $14,900,000$12,050,000 $11,500,000 v QUESTION 2.6 As the CFO, should you Include the Net Worth Arcade for investment this year? Yes No v QUESTION 2.7 Include the Balance Sheet Bar and Grill for investment this year? Yes No v QUESTION 2.8 Include the Liquidity Water Park request this year? Yes fullsail.edufclass_sections/173098/activities/4594228(student_exams/6619983/exam_detail#g9501782 No v/ QUESTION 2.9 Include the Cash McCall Roundup Show for investment this year? Yes No v/ QUESTION 2.10 Include the Budget Bullet Train for investment this year? Yes No v/ QUESTION 2.11 Include the Profitability Drop for investment this year? Yes No