Business Finance Homework Help

Purpose of Assignment :

The purpose of this assignment is for students to employ capital budgeting techniques using time value of money concepts to determine the acceptability of large dollar value assets.

Assignment Steps:

Your company has $500,000 to invest in one of the following:

Company 1: You are determining whether to purchase another company or firm for $500,000. The firm has projected free cash flows of $30,000 for Year 1, $50,000 for Year 2, and 80,000 for Year 3, $120,000 for Year 4, and 170,000 for Year 5. The projected terminal value at the end of Year 5 is $295,000. The firm’s Weighted Average cost of Capital (WACC) is 10.0%.

Company 2: You are determining whether to purchase another company or firm for $500,000. The firm has projected free cash flows of $50,000 for Year 1, $70,000 for Year 2, and 90,000 for Year 3, $110,000 for Year 4, and 130,000 for Year 5. The projected terminal value at the end of Year 5 is $280,000. The firm’s Weighted Average cost of Capital (WACC) is 10.0%.

1. Create a Microsoft® Excel® document to determine the Discounted Cash Flow (DCF) value under each scenario for the information provided above. Show calculations.

2. Display your calculations in Microsoft® Excel®.

3. Explain using Microsoft® Word®: Based only on your calculation of DCF and the $500,000 investment which company would you prefer to invest in.

4. In addition, explain what is the highest level of initial investment, instead of the $500,000, you would make to purchase each company? Why? Give a complete explanation of the highest dollar amount you would be willing to invest for these returns.

5. Provide your explanation using at least 350 words in a Microsoft® Word® document. (ATTACHED)