Wal-Marts Capital Budgeting Module 12 Capital Budgeting Techniques Capital Budgeting Case MBA 601 Wal-Mart is considering a new 4-year project. This project would require a 1,000,000 initial investment in equipment including shipping and installation. If purchased, the equipment will be depreciated using 3-year MACRS. It will allow Wal-Mart to depreciate the equipment over the four years at rates of 33.33, 44.45, 14.81 and 7.41 for years one through four respectively. The equipment can be sold at the end of the project for 250,000. The project will also require a 100,000 investment in net working capital. Wal-Mart is forecasting that they would sell 10,000 units of the new product at 100 each in the first year and those sales would increase by 30 each year. Cost of goods sold will be 60. Selling, general and administrative expenses are fixed at 250,000 per year. Wal-Mart has a tax rate of 40 Year 0Year 1Year 2Year 3Year 4Equipment(1,000,000)NWC(100,000)Sales1,000,0001,300,0001,690,0002,197,000COGS(600,000)(780,000)(1,014,000)(1,318,200)Gross Profit400,000520,000676,000878,800Operating Expenses(250,000)(250,000)(250,000)(250,000)Depreciation(333,300)(444,500)(148,100)(74,100)EBIT(183,300)(174,500)277,900554,700Taxes @ 4073,32069,800(111,160)(221,880)Net Income(109,980)(104,700)166,740332,820Depreciation333,300444,500148,10074,100Operating Cash Flow223,320339,800314,840406,920Sell at Salvage (after taxes)150,000NWC100,000Cash Flow Amounts(1,100,000)223,320339,800314,840656,920 What is the NPV of this project (interest rate is 10) Answer 69,073.78. What is the IRR of this project Answer 12.4344. What is the payback of this project Answer The payback period is 3.34 years. What is the discounted payback of this project Answer The discounted payback period is 3.53 years. Should the firm accept the project Explain. Answer Wal-Mart should accept the project. NPV is greater than zero, which means Wal-Mart will generate a return that is greater than is needed to...

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