PART 1. CAPITAL BUDGETING DECISION MAKING

Case Study 1: 

Your group is working as the Finance Team of New Age Toys Ltd. Your Team was required by the company’s management to prepare and evaluation on a new investment that aims to boost revenue by at least 15%. New Age Ltd.’s Management Board would like to convince the oncoming shareholders meeting on the outcome of this project. The board required your team to choose a method of capital budgeting that enables the board to tell shareholders about the potential share value increase generated by the new project. The table below shows the estimated data available of two alternative options for your company’s choice of capital budgeting.

Your team is required to write a short report to the company’s Management:

1) To select a relevant method of project evaluation among five investment criteria of Net Present Value (NPV), Average Accounting Return (AAR), profitability Index (PI), Internal Rate of Return (IRR), Simple Payback Period, and Discounted Payback Period for each alternative option, given the market required rate of return for all projects of this type is xxx% and the company’s benchmark of payback is maximum 3 years. Your recommendation must include your justification on why you choose the specific method based on its pros and cons compared to other methods and the financial condition of the company.

2) To perform the selected method and present the outcome of your project evaluation and recommend the option 1 or option 2 should the company choose for the project. Your justification must include calculation steps and numerical outcomes.