Overview Respond to four questions and solve two computational problems about the capital budgeting process. The capital budgeting process is a method used by organizations to evaluate their investment in various projects, such as buying new machinery or expanding into a new plant. You will benefit from being able to demonstrate the use of the capital budgeting process, including the following techniques and terms: Net present value (NPV) method. Internal rate of return (IRR) method. Modified internal rate of return (MIRR) method. Payback period. Discounted payback period. Profitability index. By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
Competency 2: Define finance terminology and its application within the business environment. Identify the benchmark when using net present value (NVP). Explain the payback period statistic. Identify the payback period statistic acceptance benchmark. Calculate the internal rate or return (IRR) and modified rate or return (MIRR) for a project. Calculate the net present value (NVP) for a project. Competency 3: Evaluate the financial health of an organization. Explain the net present value (NVP) method for determining a capital budgeting project’s desirability. Describe the internal rate of return (IRR) method for determining the desirability of a capital budgeting project. Identify the internal rate of return (IRR) acceptance benchmark of a capital budgeting project. Describe the modified internal rate of return (MIRR) method for determining the desirability of a capital budgeting project. Identify the strengths and weaknesses of modified internal rate of return (MIRR). Explain whether a project should be accepted or rejected, based on the calculated IRR and MIRR. Competency Map CHECK YOUR Details Attempt 1 Available Attempt 2 Attempt 3 Tutorials Support Log Out Shifali Kapoor
Use this online tool to track your performance and progress through your course. PROGRESS Resources Suggested Resources Suggested Resources The following optional resources are provided to support you in completing the assessment or to provide a helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left navigation menu of your courseroom. Library Resources The following e-books or articles from the Capella University Library are linked directly in this course: Weaver, S. C., & Weston, J. F. (2001). Finance and accounting for nonfinancial managers. New York, NY: McGraw-Hill. Sherman, E. H. (2011).
Finance and accounting for nonfinancial managers (3rd ed.). New York, NY: American Management Association. Course Library Guide A Capella University library guide has been created specifically for your use in this course. You are encouraged to refer to the resources in the BUS-FP3062 – Fundamentals of Finance Library Guide to help direct your research. Bookstore Resources The resources listed below are relevant to the topics and assessments in this course and are not required. Unless noted otherwise, these materials are available for purchase from the Capella University Bookstore. When searching the bookstore, be sure to look for the Course ID with the specific –FP (FlexPath) course designation. Cornett, M., Adair, T., & Nofsinger, J. (2016). M: Finance (3rd ed.). New York, NY: McGraw-Hill. SHOW LESS Assessment Instructions Respond to the questions and complete the problems. Questions Questions In a Word document, respond to the following. Number your responses 1–4. 1. Explain the net present value (NPV) method for determining a capital budgeting project’s desirability. What is the acceptance benchmark when using NPV?
Explain the payback period statistic. What is the acceptance benchmark when using the payback period statistic? 3. Describe the internal rate of return (IRR) as a method for deciding the desirability of a capital budgeting project. What is the acceptance benchmark when using IRR? 4. Describe the modified internal rate of return (MIRR) as a method for deciding the desirability of a capital budgeting project. What are MIRR’s strengths and weaknesses? Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills. Problems Problems In either a Word document or Excel spreadsheet, complete the following problems. You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet. If you choose to solve the problems algebraically, be sure to show your computations. If you use a financial calculator, show your input values. If you use an Excel spreadsheet, show your input values and formulas. In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer. 1. Based on the cash flows shown in the chart below, compute the NPV for Project Huron. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project. Project Huron Time 0 1 2 3 4 Cash Flow $12,000 $2,360 $4,390 $1,520 $3,300 2. Based on the cash flows shown in the chart below, compute the IRR and MIRR for Project Erie. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project. Project Erie Time 0 1 2 3 4 5 Cash Flow $12,000 $2,360 $4,390 $1,520 $980 $1,250
How to use the scoring guide Capital Budgeting Techniques Scoring Guide Use the scoring guide to enhance your learning. VIEW SCORING GUIDE This button will take you to the next available assessment attempt tab, where you will be able to submit your assessment. SUBMIT ASSESSMENT