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Capital Budgeting

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Holmes Institute HI5002 Memo 02 – T02, 2015 Mr. de Ville, the owner of Tasman Ian de Ville Investments Ltd. (TIDI) has asked you to evaluate five investment projects. TIDI has a $10,000,000 investment budget, an investment hurdle rate of 11.0 %, and the owner has a requirement that all investments have a Payback Period (PBP) of < 3.5 years. Also, Project 2 brings the offices and warehouse up to the current fire code and the listed savings are the “facilitation payments” (e.g. bribes) that will no longer need to be made to inspectors to avoid the office being shut-down. Year end Project 1 Project 2 Project 3 Project 4 Project 5 00 -$830,000 -$150,000 -$850,000 -$5,000,000 -$350,000 01 50,000 100,000 800,000 250,000 02 50,000 100,000 800,000 250,000 03 50,000 200,000 800,000 250,000 04 50,000 700,000 800,000 250,000 05 700,000 800,000 -2,750,000 06-30 1,100,000 800,000 250,000 Please review the above listed projects by providing NPV, IRR, PBP, B/Cratio and do not forget social legitimacy needs and select the ones that should be brought to the attention of the owner for investment consideration.