MBA FPX5014 Assessment2_1 Drill Tech Inc. and its Capital Budgeting Assessment 2: Evaluation of Capital Projects December 2021/2022

Drill Tech Inc. and its Capital Budgeting Assessment 2: Evaluation of Capital Projects December 2021/2022 EVALUATION OF CAPITAL PROJECTS 2 Executive Summary Drill Tech Inc., is a manufacturing company located in Minnesota. The director of finance, Jennifer Davidson is pursuing projects to gain capital and value in the upcoming fiscal year for the company. This report will analyze three capital projects that will help to decipher which project will provide Drill Tech with the most shareholder value. Shareholder value is the value delivered to the equity owners of a corporation due to management’s ability to increase sales, earnings, and free cash flow, which leads to an increase in dividends and capital gains for the shareholders (Kenton & and Hayes, 2019). This report is intended to compare three different capital projects that Drill Tech Inc. is seeking to invest in. The report will begin by providing a synopsis of each project and examine its computations. Furthermore, capital budgeting methods will be used to determine the quality of the proposed investments in order to make a decision of which project would best fit Drill Tech’s needs in selecting a project to invest in. The Net Present Value (NPV) for each project will be calculation, the Internal Rate of Return (IRR), payback period, and profitability index. This report has analyzed and calculated potential value of each project using capital budgeting methods and compared each calculation to determine the project that will offer Drill Tech Inc., the most shareholder value. The Net Present Value which was analyzed for each project, determined that Project C had the highest shareholder value. Project B had the lowest Net Present Value and profitability index. Project B was also examined and determined that it would take the longest amount of time to payback the initial investment. After calculating the most common capital budgeting ratios to determine profitability index, payback time, internal rate of return and each Net Present Value, the finance department determined that Drill Tech Inc. shareholders would gain the most value from accepting Project C because they had the highest Net Present Value than Project A and B did. It is important that the correct project is selected because it will be presented to the director of Drill Tech Inc., which will identify the most shareholder value. The analysis that follows will analyze each project in depth which include calculations of each project that will present a clear image on why a certain decision was made compar