Objectives:

1 Apply capital budgeting knowledge and entry level skills to a real decision made by a real company.

2 Practice identifying relevant incremental cash flows, and using the decision criteria: NPV and IRR

3 Practice using results of an analysis and case information to make a recommendation.

Question 1:

Use the template on the next tab. It enhances Ex. 5 in the case to get you started in the right direction quickly, setting up a format for you to follow and providing comment boxes with explantions.

Starting at row 72, enter data from the rows above to fill out the analysis, to give you the NPV and IRR for the project.

Use the skills developed in the Ceres Gardening forecast.

Question 2: Based on your results to #1, discuss the attractiveness of the project, based only on the NPV and IRR decision criteria.

Question 3: Copy your #1 Tab and rename it Tab #2, and do a sensitivity analysis by changing the discount rate and the capacity utilization rate, and discuss the implications of the new results. Decide on your own what discount rate and %age capacity to use. Write answer below your analysis on Tab 2.

SEE BELOW TO LEARN HOW TO COPY A TAB

Question 4: Identify the key risks in the project and how they might be mitigated. Answer on Tab 1.

Question 5: If you are advising Mr. Hansson, give him a definite recommendation: a greenlight or redlight for the project, explaining your reasoning. Answer on Tab 1.