IMPORTANT: CHOSEN COMPANY IS FedEx
As the financial analyst of your chosen company, your finance
director has requested that you perform a project analysis for the
firm’s product line expansion using the following data. Be sure to show
your analysis.
Consider an expansion cost of $20,000,000 that is
depreciated on a straight-line basis over its five- year tax life and
has a salvage value of $6,000,000. In the first year, the project will
require a working capital investment of $800,000, which will be
recovered (liquidated) in Year 5. The additional revenues from the
project in Year 1 will be $10,000,000.
Using only the new project:
Develop five-year annual income statements and projected cash flow for each year.
Data for your projections are as following:
Revenues or Sales—increasing by 10% each year.
Operating Expenses excluding depreciation are 90% of revenues each year.
Calculate
the annual depreciation expense for the project based on the initial
cost, the salvage value, and straight-line depreciation over the
five-year period.
Tax Rate—Use a fixed tax rate of 23.5%.
Discount
rate- Cost of capital or WACC—Use the weighted average cost of capital
that was developed in week four to analyze the acceptance or rejection
of this project.
In your paper, provide the following (show all calculations):
Develop the initial cash outlay for the project.
Create the future net operating cash flows in Years 1,2,3,4 and 5 for the project.
Develop the terminal value or the non-operating cash flow in Year 5.
Use
the cost of capital that was computed in week four to determine if the
capital project should be implemented. Explain your reasoning.
Discuss
the principal advantages and disadvantages for the use of scenario
analysis and simulation analysis and its impact on your chosen company
capital budgeting project decision.
The Capital Project Analysis Final Paper
Must
be five to eight double-spaced pages in length (not including title and
references pages and formatted according to APA style as outlined in
the UAGC Writing Center’s APA Style (Links to an external site.) resource.
Must include a separate title page with the following:
Title of paper
Student’s name
Course name and number
Instructor’s name
Date submitted
For further assistance with the formatting and the title page, refer to APA Formatting for Word 2013 (Links to an external site.).
Must utilize academic voice. See the Academic Voice (Links to an external site.) resource for additional guidance.
Must
include an introduction and conclusion paragraph. Your introduction
paragraph needs to end with a clear thesis statement that indicates the
purpose of your paper.
For assistance on writing Introductions & Conclusions (Links to an external site.) as well as Writing a Thesis Statement (Links to an external site.), refer to the UAGC Writing Center resources.
Must use at least five credible sources in addition to the course text.
The Scholarly, Peer Reviewed, and Other Credible Sources (Links to an external site.)
table offers additional guidance on appropriate source types. If you
have questions about whether a specific source is appropriate for this
assignment, please contact your instructor. Your instructor has the
final say about the appropriateness of a specific source for a
particular assignment.
Must document any information used from sources in APA style as outlined in the UAGC Writing Center’s Citing Within Your Paper (Links to an external site.) guide.
Must
include a separate references page that is formatted according to APA
style as outlined in the UAGC Writing Center. See the Formatting Your References List (Links to an external site.) resource in the UAGC Writing Center for specifications.
Carefully review the Grading Rubric (Links to an external site.) for the criteria that will be used to evaluate your assignment.
