FIN316 Capital Budgeting Case

Powerful Essays
Capital Budgeting Case
Su Guan
Fin316
4:00 PM
11/13/2014

Directions:
Answer questions 1 – 6 and turn in a hard copy of your answers at the beginning of class on Thursday November 13th. No late submissions will be accepted.
You will need to use Excel or Google sheets for most of the analysis. Please type answers to the questions in this word document and attach each spreadsheet as exhibits at the back.
I am trying to replicate an exam experience as much as possible so I will not be answering individual questions by email about the case before it is due. However, I will answer any clarifying questions in class on Tuesday so everyone can hear the answers together.You may work alone or with one or two other people. The maximum group size is three.
Good luck!

Iceman Inc.

Your boss, Mr. Kuklinski, believes that Southern California will soon run short of water. One of the ramifications, other than widespread rioting, is that there will be high demand for fresh, potable water. He is considering starting an iceberg transport company named “Iceman Inc.” to address this need and has asked you to help him analyze the project.
The timeline for the proposed business is as follows: In Year 0 (i.e., this year), Mr. Kuklinski would acquire the necessary assets and set up operations. In Years 1, 2, 3, and 4, the business would be in full operation, shuttling icebergs from Alaska to Long Beach. He plans to sell the ships at the end of Year 4. In Year 5 nothing will happen except he will collect all the outstanding working capital. He will then move to Costa Rica, where they have plenty of water for both drinking and surfing.
Over the past year, Mr. Kuklinski has paid $200,000 to consultants to write a report with all the relevant figures for this project. This report suggests that he can purchase six ships in Year 0 for $2,250,000 each. Ships don’t lose much value if they are well maintained, so it is expected that the ships will have a resale value of $2,000,000

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