Topic:
Use the concepts of Capital Budgeting and Net Present Value to analyze a proposed project within your specialty, company or field of expertise, and reach a conclusion about the project’s acceptability, under the principles of NPV.
Examples:
You are head of engineering at your company, and are recommending the purchase of $10M worth of new manufacturing equipment.
You are head of marketing, and are recommending a major new marketing campaign that will cost an estimated $5M.
You are head of IT, and are recommending investing in a new ERP system that will cost $6M.
You are head of HR, and are recommending the addition of 5 new people and investing in a new HR management software package. First year cost of the software is $3M; annual cost of the 5 new people is $400,000 per year.
Under the principles of Capital Budgeting, arrive at an estimate of the net incremental additions to the company’s bottom line as a result of your proposed project. Note: net incremental. Use a 5-year time horizon. Think about what discount rate to use for calculating the PV of this net incremental flow of revenues.
The point here is to demonstrate a basic understanding of these concepts. Don’t worry about the numbers – be imaginative but realistic.
