DeVry University Marketing Kellogg’s Expansion Project Capital Budgeting Analysis Presentation
ANSWER
Step 1: Obtain Kellogg’s 10-K Report Download the most recent 10-K report for Kellogg’s. You can usually find this report on Kellogg’s investor relations website or through the U.S. Securities and Exchange Commission (SEC) website.
Step 2: Calculate the Initial Investment
- Determine the current net property, plant, and equipment (PPE) figure from Kellogg’s balance sheet.
- Calculate 10% of the current PPE to find the initial investment for the project.
Step 3: Estimate Annual Depreciation
- Since Kellogg’s will use the straight-line method to depreciate the equipment, divide the initial investment by the estimated life of the equipment (12 years) to find the annual depreciation expense.
- Calculate the salvage value as 5% of the initial investment.
Step 4: Calculate Annual EBIT
- Determine the annual EBIT for the new project, which will be 18% of the project’s cost.
Step 5: Calculate Free Cash Flow
- For each year of the 12-year project, calculate the free cash flow (FCF) by subtracting taxes, depreciation, and the change in net working capital from EBIT.
- Use a 25% tax rate, and assume no increases in net working capital each year.
Step 6: Determine WACC
- Find the Weighted Average Cost of Capital (WACC) for Kellogg’s. You can typically find this information on financial websites like Gurufocus.com or by contacting your instructor if it’s not readily available.
Step 7: Calculate NPV, IRR, and Profitability Index
- Use the WACC as the discount rate to calculate the Net Present Value (NPV) of the project for each year and the total project.
- Calculate the Internal Rate of Return (IRR) for the project.
- Determine the Profitability Index (PI) by dividing the present value of cash flows by the initial investment.
Step 8: Prepare PowerPoint Presentation
- Create a PowerPoint presentation that includes the following slides:
- Introduction (Your name, CFO role, company: Kellogg’s)
- Slide showing the initial investment and annual depreciation calculations.
- Slide showing the conversion of EBIT to free cash flow for 12 years.
- Slides displaying the calculated NPV, IRR, and PI.
- A slide with a summary of the results and a recommendation for acceptance or rejection of the project.
- Conclusion and references (mention the 10-K report as a reference).
Step 9: Narrated Presentation
- Record a narration for your PowerPoint presentation, explaining each slide’s content and your calculations.
Step 10: APA Formatting
- Make sure your presentation adheres to APA standards in terms of formatting, citations, and references.
Step 11: Submission
- Submit your narrated PowerPoint presentation and any relevant Excel spreadsheets to your instructor.
By following these steps, you should be able to complete the capital budgeting analysis for Kellogg’s and present your findings in a well-structured and informative manner. Remember to provide a clear recommendation based on your calculations and analysis. Good luck with your project!
QUESTION
Description
Overview
Please note that this is an INDIVIDUAL project.
You have recently assumed the role of CFO at your company. The company’s CEO is looking to expand its operations by investing in new property, plant, and equipment. You are asked to do some capital budgeting analysis that will determine whether the company should invest in these new plant assets.
Course Project Parameters
Kellogg’s is the chosen company for this project. Download the most recent copy of the company’s 10-K report, and submit your company choice to your professor for approval.
The parameters for the week 7 project deliverable are as follows.
- The firm is looking to expand its operations by 10% of the firm’s net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm’s balance sheet.)
- The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment’s cost.
- The annual EBIT for this new project will be 18% of the project’s cost.
- The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. Use 25% as the tax rate in this project.
- The hurdle rate for this project will be the WACC that you are able to find on a financial website, such as Gurufocus.com. If you are unable to find the WACC for a company, contact your instructor. He or she will assign you a WACC rate.
Course Project Deliverables
Prepare a narrated PowerPoint presentation that will highlight the following items.
- Your calculations for the amount of property, plant, and equipment and the annual depreciation for the project
- Your calculations that convert the project’s EBIT to free cash flow for the 12 years of the project.
- The following capital budgeting results for the project
- Net present value
- Internal rate of return
- Profitability Index
- Your discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project
Once again, you may embed your Excel spreadsheets into your document. Be sure to follow APA standards for this project.
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