Managerial Finance – Capital Budgeting

Four questions regarding capital budgeting:

Please follow the following additional instructions when completing the assignment:

  • Cash flows occur annually. In other words, you do not need to make a midyear adjustment or adjust the interest rate.
  • Round dollar amounts to the nearest dollar (in other words, no decimals).
  • With the exception of Question 2, you may use Excel for all your calculations and to create thetables showing your results.
  • Please make your tables fit on one page. Choosing a slightly smaller font size as well as Word’s“Auto Fit to Page” feature can help you with this. Additionally, you may present the tables inlandscape format if necessary.
    Question 1 – Financial PlanningYou are considering going to graduate school to get your Ph.D. You anticipate that your studies will take five years to complete, that you will receive a full tuition waiver, but that you will incur living expenses of $35,000 a year while in grad school. As part of your studies you will also work as a research assistant for which you will be paid $25,000 a year. The annual interest rate on your savings account is 3.5%. Assume that there are no taxes and that you do not want to apply for a student loan. How much will you need to invest in your savings account today in order to afford graduate school? Present your results in a table similar to the one below.

Sample Solution