Module 4 - Case Capital Budgeting and Capital Structure Assignment Overview Questions 1 and 2 for this assignment are computational in nature and  require the use of Microsoft Excel. Questions 3 and 4 are conceptual in  nature and do not require computations. Make sure to thoroughly review  the required background readings and work through both the concepts and  the computational examples. The videos on computing NPV and IRR using  Excel along with the sample spreadsheet should also help. If you are  unable to figure out how to make the computations in Excel, then you can  get partial credit by computing the answers using a calculator and  thoroughly explaining your steps. For conceptual questions, make sure to  thoroughly explain the reasoning for your answers and to use references  from the required background readings. Case Assignment Submit your answers to the following questions in a Word document,  and also submit an Excel file with your computations for Questions 1 and  2: The table below gives the initial investment (the negative numbers  at “Year 0”) for two projects. Compute the payback period, the NPV, and  the IRR using Excel. Then rank the two projects based on each of these  three criteria, and discuss which projects should be funded based on  your computations. The ACME Umbrella Company is deciding between two different umbrella  factories. Both factories will cost $500,000 to get started. However,  the cash flows for each factory will depend on whether the next five  years are rainier than average or sunnier than average. Factory A will  have cash flows of $130,000 per year for the next five years if the  weather is sunnier than average. But if it is rainier than average the  cash flows will be $150,000 per year for the next five years. Factory B  will have cash flows of $100,000 per year for the next five years if it  is sunnier than average, but if it is rainier than average it will have  cash flows of $200,000 per year. ACME has a cost of capital of 9%. Based  on this information, calculate the following: Firm Cost of Capital: 11%YearProject AProject B0-100,000-150,000125,00030,000225,00030,000325,00090,000425,00020,000525,00020,000625,00020,000 Calculate the NPV for both factories and for both scenarios (rainy  versus sunny). What is the range of NPV for each factory based on your  scenario analysis? Based on your answer to a) above, do you think ACME should use the  same discount rate of 9% for each factory? Or should they use a  risk-adjusted discount rate (RADR)? If so, which factory should have a  higher RADR? Explain your answer with references to the background  readings. Your neighbor Freewheeling Franklin has a very successful new  internet-based technology company. While his company has great cash  flow, you see Mr. Franklin has a collection of five expensive sports  cars in his newly built garage. You also see him throwing some  extravagant parties every weekend where he serves expensive ...

1. Module 4 - Case
Capital Budgeting and Capital Structure
Assignment Overview
Questions 1 and 2 for this assignment are computational in
nature and require the use of Microsoft Excel. Questions 3 and
4 are conceptual in nature and do not require computations.
Make sure to thoroughly review the required background
readings and work through both the concepts and the
computational examples. The videos on computing NPV and
IRR using Excel along with the sample spreadsheet should also
help. If you are unable to figure out how to make the
computations in Excel, then you can get partial credit by
computing the answers using a calculator and thoroughly
explaining your steps. For conceptual questions, make sure to
thoroughly explain the reasoning for your answers and to use
references from the required background readings.
Case Assignment
Submit your answers to the following questions in a Word
document, and also submit an Excel file with your
computations for Questions 1 and 2:
The table below gives the initial investment (the negative
numbers at “Year 0”) for two projects. Compute the payback

2. period, the NPV, and the IRR using Excel. Then rank the two
projects based on each of these three criteria, and discuss
which projects should be funded based on your computations.
The ACME Umbrella Company is deciding between two
different umbrella factories. Both factories will cost $500,000
to get started. However, the cash flows for each factory will
depend on whether the next five years are rainier than average
or sunnier than average. Factory A will have cash flows of
$130,000 per year for the next five years if the weather is
sunnier than average. But if it is rainier than average the cash
flows will be $150,000 per year for the next five years. Factory
B will have cash flows of $100,000 per year for the next five
years if it is sunnier than average, but if it is rainier than
average it will have cash flows of $200,000 per year. ACME
has a cost of capital of 9%. Based on this information,
calculate the following:
Firm Cost of Capital:
11%YearProject AProject B0-100,000-
150,000125,00030,000225,00030,000325,00090,000425,00020,0
00525,00020,000625,00020,000
Calculate the NPV for both factories and for both scenarios
(rainy versus sunny). What is the range of NPV for each
factory based on your scenario analysis?

3. Based on your answer to a) above, do you think ACME should
use the same discount rate of 9% for each factory? Or should
they use a risk-adjusted discount rate (RADR)? If so, which
factory should have a higher RADR? Explain your answer with
references to the background readings.
Your neighbor Freewheeling Franklin has a very successful new
internet-based technology company. While his company has
great cash flow, you see Mr. Franklin has a collection of five
expensive sports cars in his newly built garage. You also see
him throwing some extravagant parties every weekend where he
serves expensive champagne. Based on the required background
readings such as Ross, et al. (2013)., explain how you would
handle the following situations:
Mr. Franklin asks you for a loan to help expand his business and
offers you an interest rate considerably higher than you would
get from leaving your money in the bank. As a lender, what
measures might you take to make sure you get your money back
and Mr. Franklin won’t waste the money?
Mr. Franklin asks you to buy one-third of his company, and
wants to use the money from selling this portion of the
company to expand his business. As a shareholder, what steps
might you take to make sure he spends his profits and the
investment money you gave him wisely?
Suppose you own a new business and after a few rough years
you now are making a solid profit of $150,000 per year and
have built up some savings as well. While your business is
successful, you realize that in order to expand and remain
competitive you are going to have to raise a lot of money to
invest in some new machinery and new stores. You have to

4. decide between using your savings to finance your expansions
and machinery upgrades, taking out a bank loan, or selling a
portion of your equity to new investors. Explain the pros and
cons of each of these three options in this situation, and make
references to the required background readings such as Ross, et
al. (2013).
SECOND ASSIGNEMNT
THE BELOW NEEDS TO BE DONE BASED ON APPLE,
NETFLIX, AMAZON AND WALMART THIS IS THE
COMPANIES I CHOSE.
Module 3 - SLP
Risk, Return, and Stock Valuation
For your Module 3 SLP, we will go back to looking at
information about the stock price and stock returns of your four
companies. Look up the following information about your four
companies on Yahoo Finance,
Investing.com
, Morningstar, or a similar page:
The current stock prices
The stock prices five years ago
The dividend yield for each stock
The beta for each stock
Look up the current three-month treasury bill rate on

5. Fidelity’s Fixed Income page
Now do the following calculations with this information:
Calculate the average annual capital gain or loss (stock price
change) over the last five years. Calculate the percentage
change from five years ago, and divide by five. For example, if
the stock price increased from 50 to 100 in five years, the
percentage increase would be 100% and the average annual gain
would be 20% (100 divided by 5). Which of these companies
has the highest or lowest capital gain?
Now estimate the average total return, which is the capital gain
plus dividends. If the dividend yield is 2%, then the average
total return would be 22% in the example above. Which of these
four companies has the highest or lowest total return? Does the
order change?
Finally, calculate the Treynor Ratio. First, take the total return
for each of your four companies and subtract the three-month
treasury bill rate (the “risk-free rate”). Then divide this by the
beta of each company. This ratio is a measure of the risk-
adjusted return of each stock. The higher the return, the higher
the Treynor Ratio. But the higher the beta (which is a measure
of risk), the lower the Treynor Ratio. Which of your companies
has the highest or lowest risk-adjusted return? Does the order
change from what you found in 1) and 2) above?
Submit a one-page memo in Word summarizing your findings,
and include an Excel file with your data and calculations.