1120D Finance Capital Budgeting Assignment

1120D Finance Capital Budgeting Assignment

This 1120D finance capital budgeting assignment is mainly concentrated in the areas of Capital Budgeting and Weighted Average Cost of Capital.

Overview

Whilst it would be difficult for you to put together a complete and comprehensive Capital Budget, the purpose of this assignment is for you to create a business plan for a venture of your choosing and to estimate the required inputs and outgoings for the business that you have chosen.
There is no right or wrong answer for this assignment, it is about you thinking about a possible project and all the issues that you might have to confront. Imagine you are trying to convince an investor to put money into this project.

You will need to :

• Present a written business plan detailing the nature of the venture, any market research report that may have been carried out, who will be your customer base, present a time line for the lead up to the opening date, what your expectations are regarding the future development of the business, including growth forecasts.
• Determine what assets will need to be purchased for the project to proceed. You can group these into just one dollar amount and apply the same depreciation rate to that one number. In reality, each asset could have a different depreciation rate. You can ignore that possibility and treat them as having the same depreciation rate for all.
• Expenses should be broadly detailed and then treated as one number representing that group of expenses, eg; Staff costs, Maintenance, Property expenses, Office expenses. You choose you own expense areas.
• Depreciation rate for the assets is your choice, applied as a percentage per annum for the total value of those assets.
• Determine a salvage value for the assets at the end of the project.
• Decide upon a discount rate to use in calculating the Net Present Value of the project. Assume that you are borrowing some of the funds and raising some from shareholders of perhaps from partners. You will need to calculate a Weighted Average Cost of capital to use as a discount rate.
• Determine what amount of working capital will be needed to proceed and include that appropriately.
• Apply a 20% Investment Allowance.Determine the expected life of the project.
• The length of the project is you choice and the corporate tax rate is 30%P.A.