The initial total investment for this PRO2 project would be the same as the initial total investment for the PRO1 project, and the predicted future cash flows (after all adjustments) for this five-year project would be as follows:
The needed rate of return is calculated using the company’s weighted average cost of capital (WACC), which has recently ranged from 13% to 19%. Management has decided to evaluate this project using both rates. The corporate tax rate is 30%. RADIANCE has a 3.5-year projected discounted payback period. The Chief Financial Officer (CFO) of RADIANCE Corp demands a detailed explanation of all pertinent issues connected to the machine PRO1 project before making a final decision in the future meeting. The CFO additionally requests a FORMAL REPORT that includes a detailed analysis of cash flows and explanations of outcomes using proper capital budgeting procedures that are often utilised in project evaluation. Furthermore, the CFO is interested in reviewing the details of the comparison between PRO1 and PRO2 projects in terms of the results of appropriate capital budgeting methods using both 13% and 19% required rates, crossover rate, and all relevant factors that can assist in making a final decision in a separate section of the report.
Required Using Excel Spreadsheet, prepare a full analysis to be presented to the CFO of RADIANCE Corp. in evaluating whether either project should be started or not. Your analysis should include the following:
- Table of cash flows (Show all digits, do not convert amounts to $ in million or thousand)
- Use of excel formulae where appropriate (with 3 pages maximum for values and 3 pages maximum for formulae)
- Justify your recommendations using quantitative and qualitative issues and your analysis of probable risks and benefits relating to the project. A comparative statement using 13 per cent and 19 per cent required rate is to be presented in a separate section in the report.