FIN300 - Principles of Finance for the Private Sector _FIN 300 Capital Budgeting Case: Colorado State University - Global Campus

Capital Budgeting Case FIN300 - Principles of Finance for the Private Sector Colorado State University - Global Campus Capital Budgeting Case The North Sea Oil company has compiled a listing of their current relevant costs of external capital. This information has included long-term debt amounting to 7%, preferred stock amounting to 19%, and common stock equity amounting to 20%. The target capital structure of the weighted average cost of capital (WACC) includes 25% of long-term debt, 25% of preferred stock, and 50% of retained earnings and common stock. All sources of capital, such as common stock, long-term debt, and preferred stock are included in the WACC calculation (Weighted Average Cost Of Capital – WACC, 2018). An evaluation of two different investment opportunities has been presented. The first project (Project A) has an overall investment requirement of $130 thousand, with an estimated cash flow income over the next 5 years. This investment opportunity includes a payback period of 3.5 years. The payback period explains the time a project requires to recover (usually in years) invested money (Payback Method, 2017). The second project (Project B) has an overall investment requirement of $85 thousand, with and estimated cash flow over the next 5 years. This investment opportunity includes a payback period of 2.3 years. See Table 1. for more specific details.