Reference no: EM132438262

Scenario:

You work as a finance manager for Drill Tech, Inc., a mid-sized manufacturing company located in Minnesota. In the meeting to discuss capital projects, the director of finance (and your boss), Jennifer Davidson, gives you a synopsis of the projects along with this question: Which one of these projects will provide the most shareholder value to the company?

She also tells you that other than what is noted in each project scenario, all other costs will remain constant, and you should remember to only evaluate the incremental changes to cash flows.

The proposed project for you to review is.

• Expansion into Western Europe has a forecast to increase sales/revenues and cost of sales by 10% per year for 5 years.
• Annual sales for the previous year were $20 million.
• Start-up costs are projected to be $7 million and an upfront needed investment in net working capital of $1 million. The working capital amount will be recouped at the end of year 5.
• Because of the higher European tax rate, the marginal corporate tax rate is presumed to be 30%.
• Being a risky investment, the required rate of return of the project is 12%.

Please help me understand how I would understand this information. I must use excel to obtain the correct formula, and then I must compose a llarge paper on the findings. I must demonstrate knowledge of a variety of capital budgeting tools, with just this information, including net present value (NPV), internal rate of return (IRR), payback period, and profitability index (PI).