14 Oct Capital Budgeting and AI Assignment

For this week’s assignment, you will research the following scenario to complete the Capital Budgeting and AI assignment.

Scenario

You are a senior financial analyst at a diversified manufacturing firm evaluating two mutually exclusive investment projects: Project Alpha and Project Beta. Each has different initial outlays, economic lives, and risk profiles. The CFO wants both a traditional capital budgeting analysis and an assessment of how AI-supported analysis might affect the recommendation.

Project Alpha – Moderate Life, Efficiency Upgrade

· Project type: Efficiency/automation upgrade in an existing plant

· Economic life: 5 years

· Initial investment (time 0): 2,500,000

· Salvage value at end of Year 5: 300,000

· Yearly expected after-tax cash flows (Years 1–5):

Year

Cash Flow (USD)

Total

1

650,000

2

700,000

3

725,000

4

750,000

5

775,000 + 300,000 (salvage)

1,075,000

Base-case discount rate for Alpha: 10 percent

Project Beta – Growth-Oriented Product Launch

· Project type: New product launch in an adjacent market

· Economic life: 5 years

· Initial investment (time 0): 3,600,000

· Salvage value at end of Year 5: 200,000

· Yearly expected after-tax cash flows (Years 1-5)

Year

Cash Flow (USD)

Total

1

550,000

2

700,000

3

850,000

4

950,000

5

900,000 + 200,000 (salvage)

1,100,000

Base case discount rate for Beta: 10 percent

Assignment Details

Using a spreadsheet:

1. For each project, compute:

1. Net Present Value (NPV) at the firm’s base discount rate

2. Internal Rate of Return (IRR)

3. Modified Internal Rate of Return (MIRR) using the firm’s cost of capital as finance and reinvestment rate

4. Payback Period and Discounted Payback Period

2. ​ Vary the discount rate to 5 percent, 10 percent, and 15 percent and: Recalculate NPV for each project at each rate.

3. Provide a brief written justification (1–2 paragraphs) of which project you would choose under:

1. NPV decision rule

2. IRR decision rule

3. MIRR decision rule

4. Use an AI Tool of your choice (ChatGPT, Co-Pilot, Perplexity, etc.) and present the base-case project description and your initial cash-flow assumptions for one project (Project Alpha or Project Beta) to an AI tool.

5. Ask the tool to suggest:

1. Additional revenue or cost drivers that may have been omitted.

2. Plausible best-case, base-case, and worst-case scenarios for key cash-flow drivers (for example, sales volume growth, unit prices, variable costs, or operating margins).

3. Perform a simple one-variable sensitivity analysis by changing one key input (for example, sales growth or operating margin) over at least three values and recomputing NPV.

6. Explain in 2–3 paragraphs how the AI-generated ideas or scenarios changed (or confirmed) your view of the project’s risk and attractiveness. Clearly distinguish between what you accepted from the AI suggestions and what you rejected, and why.

Guidelines

· The paper should be one to two pages and Excel spreadsheet.

· Use APA format (title page, double-space, references).

· Don’t forget to submit your documents.

Action

Select the Start Assignment button to begin.

Once you have uploaded your file(s), select Submit Assignment.

Rubric

Fin510 week 6 AI – 120 points (May 26)