BUS3062-Fundamentals of Finance unit #5 BUS3062-Fundamentals of Finance unit #5 Please kindly do all section below; Section 1, 2, 3, AND 4 ARE DUE BY MARCH 12, 2018 BUS3062-SECTION-#1-U05D1 The Wall Street Journal Article Review or Measuring Capital Budget Desirability Review the Discussion Participation Scoring Guide. For the Unit 5 Discussion, you have the option of responding to one of two topics, either Option 1: The Wall Street Journal Article Review, or Option 2: Measuring Capital Budget Desirability. Option 1: The Wall Street Journal Article Review We are now at the end of the course of the fundamentals of finance. For this discussion topic, you are to select and address one of the topics covered in this course as it relates to an article found in The Wall Street Journal. Capella has secured full online access for you to The Wall Street Journal. This daily newspaper provides coverage of headlines and breaking news in the United States and around the world, with a focus on business issues that are pertinent to you. Review an article of your choosing from The Wall Street Journal and address the following: • Access The Wall Street Journal (WSJ). Directions for signing up to WSJ are included in the Courseroom in the “Getting Started” tab. • Select an article of your choosing from the WSJ. The article should relate to stocks or bonds, ethics, risk, return, financial markets and institutions, time value of money concepts, or any other topic that we have covered in this course on the fundamentals of finance. In each daily publication, there will be numerous examples from which to choose. • Provide the title and date of the article you have selected. • Briefly, list and provide definitions of the various terms/concepts we have studied that you have found in the article. A minimum of three definitions should be found. • Your discussion post is not required to be of significant length, as there is value in your demonstration of having accessed The Wall Street Journal evidenced by your having matched several theoretical definitions/concepts to actual business occurrences. Option 2: Measuring Capital Budget Desirability. Chapter 13 of the M:Finance text discusses various criteria for calculating and analyzing the desirability of a capital budgeting project. This task is extremely important as these projects often entail very large cash outflows and may significantly determine the future profitability level of the firm. Review this chapter with particular emphasis on each of the six capital budgeting techniques reviewed and address the following: • In this scenario, you are the chief financial executive of a firm that is analyzing a major project that entails a large initial cash outflow at time point zero and has future expected cash inflows occurring over the next ten-year period. If you could only select three of the techniques to analyze this projects acceptability, which three techniques would you select? Explain your selection. • Since you only have three techniques available, explain why you would not select both IRR together with MIRR. Which method is preferable, IRR or MIRR? Explain your response. • Also, explain why you would not select both the regular payback together with the discounted payback. Which method is preferable, regular payback or discounted payback? Explain your response. • When analyzing a project for desirability, which do you believe is more important: the technique to analyze investment acceptability, or the usage of the most accurate projections of cash flows? Explain your response. SECTION-#2-U05D1-REPLY TO 2 DISCUSSIONS Response Guidelines Read your peers’ initial discussion posts and respond to at least two of them. Compare your post to those of your peers and note any differences. Explain why you agree or disagree with your peers’ views and analyses. Your responses are expected to be substantive in nature and should reference the assigned readings or other professional literature, as applicable, to support your views. Resources • Discussion Participation Scoring Guide. SECTION-#3-U05A1 Capital Budgeting Measurement Criteria Introduction In this assignment, you will learn about the capital budgeting process, which is basically how companies evaluate their investment in various projects, such as buying new machinery or expanding into a new plant. In addition, you will learn about the following techniques used in capital budgeting: • Net Present Value. • Internal Rate of Return. • Modified Internal Rate of Return. • Payback Period. • Discounted Payback Period. • Profitability Index. Instructions Answer the following questions and complete the following problems, as applicable. You may solve the following problems algebraically, or you may use a financial calculator or Excel spreadsheet. If you choose to solve the problems algebraically, be sure to show your computations. If you use a financial calculator, show your input values. If you use an Excel spreadsheet, show your input values and formulas. Note: In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer. • Question 1: o Proficient-level: Describe the Net Present Value (NPV) method for determining a capital budgeting project’s desirability. What is the acceptance benchmark when using NPV? o Distinguished-level: Identify the NPV method’s strengths and weaknesses. • Question 2: o Proficient-level: What is the payback period statistic? What is the acceptance benchmark when using the payback period statistic? o Distinguished-level: Identify what problem of the Payback Period method is corrected by using the Discounted Payback Period method. • Question 3: o Proficient-level: Describe the Internal Rate of Return (IRR) method for determining a capital budgeting project’s desirability. What is the acceptance benchmark when using IRR? o Distinguished-level: Explain how the NPV and IRR methods are similar and how they are different. • Question 4: o Proficient-level: Describe the Modified Internal Rate of Return (MIRR) method for determining a capital budgeting project’s desirability. What are MIRR’s strengths and weaknesses? o Distinguished-level: Explain the differences in the reinvestment rate assumption that distinguishes MIRR from IRR. • Question 5: o Proficient-level: Compute the NPV statistic for Project Y and tell [advise] whether the firm should accept or reject the project with the cash flows shown in the chart if the appropriate cost of capital is 10 percent. o Distinguished-level: Explain how decreases in the cost of capital lead to an increase in the number of approved projects. Project Y Time 0 1 2 3 4 Cash Flow -$6,000 $3,350 $4,180 $1,520 $300 (Cornett, Adair, & Nofsinger, 2016). • Question 6: o Proficient: Compute the payback period statistic for Project X and recommend whether the firm should accept or reject the project with the cash flows shown in the chart if the maximum allowable payback is four years. o Distinguished-level: If the discounted payback period were computed, identify if it would be less than, equal to, or greater than the non-discounted payback period. Project X Time 0 1 2 3 4 5 Cash Flow -$1,450 $250 $380 $620 $1,000 $100 (Cornett, Adair, & Nofsinger, 2016). Submit your completed assignment as an attachment in the assignment area. You may use either a Word document or an Excel spreadsheet for your work, but not both. Prior to submitting your assignment, review the Estimating Risk and Return Scoring Guide to ensure you have met all of the requirements and as a self-assessment of your work. Reference Cornett, M. M., Adair, T. A., & Nofsinger J. (2016). M: Finance (3rd ed.). New York, NY: McGraw-Hill. Resources • Capital Budgeting Measurement Criteria Scoring Guide. SECTION-#4-U05Q1 Final Quiz Introduction Now that you have completed the course, it is time to take this multiple-choice quiz, which gauges your understanding of the material presented in Units 1 through 5 and provides an opportunity for you to demonstrate your mastery of the following course competencies: • Evaluate the global financial environment. • Define finance terminology and its application within the business environment. • Evaluate the financial health of an organization. Instructions Read the following instructions before taking the quiz: • There is no time limit on the quiz. • You must take and submit the quiz in this unit. • After answering each question, submit your quiz to receive credit. The quiz is scored automatically, and you will receive feedback immediately. There are 100 total points possible. Each question is worth four points. • You may access the quiz to view the questions; however, you cannot retake the quiz to change your grade. Once the grade is recorded, it cannot be changed. • Because you are able to access and take the quiz only once, do not access the quiz until you are ready to complete it. • When you access the quiz, read the Instructions and Troubleshooting page before you begin. To start the quiz: Click Quizzes or Assessments in the Course Tools menu of the courseroom. If you have any issues with the quiz, contact your instructor.