Evaluation of Capital Projects MBA-FPX5014 Capella University April 3, 2021/2022

Evaluation of Capital Projects MBA-FPX5014 Capella University April 3, 2021/2022 EVALUATION OF CAPITAL PROJECTS 2 Table of Contents Executive Summary.........................................................................................................................3 Capital Budgeting Tools..................................................................................................................4 Net Present Value (NPV).............................................................................................................4 Internal Rate of Return (IRR)......................................................................................................6 Payback Period............................................................................................................................6 Profitability Index (PI).................................................................................................................7 Summary Analysis.......................................................................................................................7 Capital Project Options....................................................................................................................8 Project A......................................................................................................................................8 Project B......................................................................................................................................8 Project C......................................................................................................................................9 Qualitative Factors.......................................................................................................................9 Investment Decision......................................................................................................................10 References......................................................................................................................................12 Appendix A....................................................................................................................................13 Appendix B....................................................................................................................................14 Appendix C....................................................................................................................................16 EVALUATION OF CAPITAL PROJECTS 3 Executive Summary The intent of the following report is to choose the best investment out of three proposed capital projects for the ABC Corporation so that it can maximize the wealth of its shareholders. Really, the motivation for doing so is to grasp a firm understanding of capital budgeting tools and decision making as well as foster the success of ABC so that it does not remain undervalued. It is believed that the distinct methods utilized to generate the results will contribute to this outcome. First, after diagnosing Net Present Value (NPV), Internal rate of Return (IRR), Profitability Index (PI), and Payback Period, we applied the techniques to each project. Next, we utilized the rules of the methods and other financial data to evaluate and compare the projects. This included diagnosing qualitative factors that could impact decision making. Finally, we made an investment determination based on financial data analysis. A synopsis of the results is favorable for the ABC company. The NPV of each project is over zero and all of them would be profitable. But purchasing new equipment and or expanding into three states will not optimize shareholder value. Yet a marketing/advertising campaign will. For this reason, the recommendation is that ABC choose Project C. Should ABC follow the suggestion, the following outcomes are probable:  The company’s share prices will raise.  ABC will see consistent positive returns over a six-year period.  The company will get a better bang for its buck. Really, Project C could not put ABC in a better position to make money and satisfy its shareholders. Still, without the findings of this report, the company would be blind to these possibilities. In fact, it may or may not choose the wrong investment. This would be a disaster for the company. Therefore, proving the importance if this work.