1 Identify relevant incremental cash flows

2 Calculate cost of capital (k-wacc) to use as the discount rate

3 Calculate the metrics of capital budgeting: Net Present Value, Profitability Index, Internal Rate of Return, and Payback Period.

Then, you will apply the metrics and information in the case study to make a recommendation about which of the two projects to accept.

The essence of the capital budgeting process is to make sure, before an investment is made, that its prospective rate of return is high enough to justify the investment, i.e., that the project is CREATES value, not DESTROYS value.Questions

Q1 What is the Transport Division's suggestion? Does it have merit? How should Lucy Morris respond?

Q2 What is the Director of Sales' suggestion? Does it have merit? How should Lucy Morris respond?

Q3 What did the analyst from the Treasury staff mean by his comment about inflation? Do you agree? How should Lucy Morris respond?

Q4 Modify Frank Graystock's analysis by adding, removing, or changing any line item or entry that you believe is justified. Briefly explain what you did.

Q5 Based on the changes you made in Q4, should Lucy Morris continue to promote the project for funding?

Attachment:- exhibits.xlsx