Please set the following capital budgeting problem up in excel. Upload your answer. Include formulas where appropriate.
You are responsible to make a recommendation to the college regarding the upcoming capital projects. Be sure to evaluate each project using payback, NPV, IRR and PI capital budgeting techniques. We do not have enough money to do both projects, please evaluate both and make your recommendation. Both projects will require an original cash investment of $1,500,000. We are considering a renovation to the classrooms (project A) and a renovation to the library (Project B). The classroom update will provide revenue of $700,000 and the library $900,000 year one. For the classroom update, cash inflow will be $300,000 years 1 & 2, $400,000 years 3 & 4 and $100,000 each year 5 and beyond. The library will have cash inflow of $500,000 years 1, 2, &3 and 100,000 each additional year after that. The college has a payback policy of 5 years and our cost of capital is 8%. Assume each project will have a 10-year useful life.
Be sure to label your excel clearly. Communicate whether the decision would be to move forward or not for each method (payback, NPV, IRR, PI) separately. Then make one final recommendation on which project the college should fund. Include a justification for your recommendation. If you would recommend neither project, indicate why and which is better even though you would not move forward.