The Document: Use a single document in MS Word or MS Excel to submit the project

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The Document: Use a single document in MS Word or MS Excel to submit the project.
Inserting Excel Spreadsheets and Graphs: You will most likely use some financial tools that require spreadsheets or graphs. To do this for a Word document, it is recommended that you draw from Excel by cutting and pasting spreadsheets and graphs onto the Word page. Do this inline with your text. Just type along in the paragraph, refer to the spreadsheet or graph, and then drop down a line or two before you drop in the spreadsheet or graph from Excel.
Since Word cannot see inside the cells, and you will likely need to “show your work” from the cell, use adjacent cells to explain the data or computation, or use a text box.
Page Layout: The layout is found in both Word and Excel under the tab “Page Layout.”
· In both Excel and Word, format the margins at one inch all around and headers and footers at half-inch.
· Orientation of the document should be Portrait.
· Size should be Letter, 8½ x 11.
· Do not use colored background or colored text; use standard white background and black fonts.
· Use a footer to number the pages. Keep it simple; just the number is good.
· You do not need to use a footnote at the end of a page. Instead use parentheses in the paragraph and a References section at the end, per APA.
The Printable Area: Print out your Word document for yourself if necessary to be absolutely certain that you have avoided widows and bleed-over. These are lines of text and exhibits, such as spreadsheets and graphs, that run off the page onto another page. If you do a spreadsheet or graph in Excel, check for bleed-over before you drop the exhibit into the Word document. In Excel, you can also check this by hitting Control-Print, and then selecting the Home tab again. A dashed line will show the printable area in Excel. You do not want spreadsheets, graphs or text running over those dashed lines.
Text: Use Times New Roman at 12-point font consistently throughout the document.
Cover Page: Center all lines on the cover page.
· The top of the cover page includes two lines containing the title of the paper and your name.
· Drop down a couple of lines and type the Course Name, Course Number, and Section.
· Drop down another line and type the project name: “Comprehensive Capital Budgeting Analysis.”
· On the next line enter the date.
· Finally, drop down several lines and near the bottom, write the academic honesty statement using the guidelines document provided in the Canvas module entitled “Comprehensive Capital Budgeting Analysis.”
The Body – Writing: In the body of the document, writing should begin your document and end your document. You should probably write throughout the document, while your exhibits provide support for what you say. At a minimum for your beginning, you need an introductory paragraph explaining the project parameters and what you are setting out to do. To end the document, you need, at minimum, an ending paragraph giving your conclusions with adequate explanations. Business students are often fond of data, computations, spreadsheets, and graphs, but writing is most important! If you have data and
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computations, do not leave it unexplained with no writing. Write about what you are going to do, then write about what you have done, and how, and why! For every exhibit of data, spreadsheets, or graphs there needs to be a written explanation (within reason).
Grammar: This is very important and a part of the assignment’s grade. Use complete sentences. Avoid run-on sentences. Look up how to avoid run-on sentences on the internet, or consult a grammar textbook. Watch for errors related to conjugation of verbs. Punctuate and spell properly. Spellcheck does not catch every spelling error. Some common errors include “fro” instead of “for,” “form” instead of “from,” and a favorite for business majors, “manger” instead of “manager.” Watch for slips in sentence construction and logic, as well as missing words. Finally, proofread and edit your document.
Length: There is no length requirement. Too little writing and exhibits will become apparent to any reader, because the answers to the questions will not be understandable, or adequately explained, or complete. However, if you do not explain what you are doing with the exhibits, or how the computations are done, you will know that your document is too short.
References: After the end of the body of the paper, use referencing as required under the university’s APA guidelines. You have already been doing this with the Academic Assessments.
The Project: Use the guidelines and project requirements given in the document entitled “Capital Budgeting Analysis.” It is provided in the Canvas module in Unit 5 entitled “Comprehensive Capital Budgeting Analysis.” Also view the video from Dr. Roller on this project. The project will call on you to use every relevant tool in the “toolbox” that you have acquired throughout the first four weeks of the course. As you read the document, you will see that some of these tools will be obvious from the data and answers requested. Dr. Roller pointed out in his video that this project involves synthesis from your new knowledge base to answer the requirements of the capital budgeting project. He referred to the maxim, “Begin with the end in mind.” To do this, keep in mind that you want to find answers through analysis to reach logical conclusions. Your data and exhibits should support these conclusions. This method usually requires some kind of testing or probing to discover answers. Such probing is where your financial tools come in handy. Is there a minimum of financial tools required? You will not be given a specific answer here, because your synthesis of much information and the requirements of the project, along with your financial judgment, will answer that for you.
Students,
Here are more hints. Keep in mind that you are comparing two Alternatives, so you will have two sets of Cash Flows, etc.
To get the Initial Investment right, follow the solution method on p. 456.
For the Incremental Cash Flows, let Delta mean “change in.” Let T = Taxes at the given rate. Then…
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Incremental Cash Flow per year = (Delta Revenue – Delta Expenses)(1 – T) + (Delta Depreciation x T). You saw this in Dr. Roller’s video.
Do your setup horizontally left to right, year 1 through the terminal year. You can stack this with a column of data for each year, For example, setting up Year 1 only, below:
Year 1
Delta Revenue
Delta Expenses
Delta Depreciation____________________________
= Year 1Incremental CF (using the above formula)
You will need to next go to the Cumulative Cash flows. But here you start at Year 0, where you have the negative figure for Initial Investment. (You must get that Initial Investment right to proceed!) So start a new cash flow row beginning with Year 0, then Year 1, etc.
· The Year 0 CF is Initial Investment (negative).
· The Year 1 CF is Year 0 CF + Incremental for Year 1.
· Year 2 CF is Year 1 CF + Incremental for Year 2. And so on.
When you get to the terminal year, add the cumulative plus the Terminal CF.
In your capital structure, evaluate the book values and market values for new common stock, bonds, and preferred stock. Assume they are workable for all three types of financing, and you will find the weights from your calculations, thus:
· For Bonds (book value) it is # shares outstanding x Par. For market value, # shares outstanding x market price.
· Similar for Stocks (book and market).
· Similar for Preferred stocks (book and market).
You can assess not only the weight of each type of financing, but also the cost ( in percent) and weighted average (in percent). Use the formula for WACC to add up the cost of debt, common stock, and preferred.
RISK: Risk can set up the Beta in the CAPM. Assume that “10% less risk than an average project” is translatable to Beta for the market as a whole. So then “20% more risk than an average project” is also translatable to Beta for the market as a whole. What would these two Betas be?
RADR is derived from the CAPM from the given data and the surmised figure for Beta (hinted above). So the project’s risk-adjusted required return equates to the RADR. For example, use the RADR in the NPV computation.
Dear Students,
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By now you you have probably seen several Announcements. Take a look at the entire list of Announcements to be found to the left of the Canvas for this course. I have sent several previous Announcements about the Big Project due this week! The Hints below point to specific things to do and pitfalls to avoid. At this late stage, I hope it is not information overload — so I would appreciate your comments. Here goes…
Hints and Assumptions:
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a. The CAPM equation has two uses in the analysis: (1) deriving the required return for the overall firm using the firm’s Beta (non-diversifiable risk index, given as 1.35), and (2) deriving each proposed project’s required return using the project’s Beta. Project Betas are indirectly given where it says Project A’s risk is 10% less than the average project, and Project B’s risk is 20% higher than the average project. Assume this: “Average project” risk is equivalent to the overall market’s non-diversifiable risk. What is that Beta (risk index) for the overall market? To answer this, on p. 351, read the first two sentences under the heading, “Interpreting Betas.” Look at Figure 8.8, p. 350. If you were to draw the returns (characteristic) line for the stock market, it would be a 45-degree angle, as both axes would be labeled “Market Return.” So what is the slope of a 45-degree angle? Hint: The line falls between Pepsico’s slope of 0.66 and BOA’s slope of 1.73. So if you know the Beta for the “average project,” you can derive each project’s beta from the given “10% less risk than” and “20% more risky than” quotes.
b. Use after-tax cost of new capital (debt, preferred, common) to figure WACC. Use market prices and shares outstanding to figure total market value per debt, preferred, and common. The proportion of each dollar value to total value of capital will set the weight as a percentage for each type of capital. Weight times cost of capital for each is the weighted average for each. Sum the weighted averages to derive the WACC. Then the WACC plugs into the CAPM (eq. 8.8, p. 353) as the equivalent of required return of the market, rm.
3. About those target weights versus the “next best thing” in the project instructions, see p. 393, which discusses market value weights versus target weights. With no available target weights, you must use the market value weights.
4. See “Using CAPM to Find RADR” on p. 470. So use the RADR as the Required Return of Asset i (ri) in the CAPM. Then CAPM is…RADR = Rf + [Beta x (WACC – Rf)].
5. Use the NPV equation (eq. 10.1, p. 414). Some common errors with NPV include: (1) Taking the CFs as they are (not applying a discount rate). (2) Using FV instead of a PV calculation.(This happens often.) These first two errors produce very inflated NPVs! (3) Incorrectly figuring the amounts of the annual CFs. A very common error is at the very beginning, getting the initial
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investment wrong. Opportunity cost is very often overlooked as an outflow toward the initial investment total. To identify the opportunity cost, Read the discussion of opportunity cost, p. 448. (4) Failing to subtract the initial investment.

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