Integrative Learning Rubric, Definiti... Capital Budgeting Decisions A college intern working at Anderson Paints evaluated potential investments using the firm’s average required rate of return (r) as...

This is the final case study for this class.


Integrative Learning Rubric, Definiti... Capital Budgeting Decisions A college intern working at Anderson Paints evaluated potential investments using the firm’s average required rate of return (r) as the discount rate in the evaluation process and he produced the following report for you as the capital budgeting manager at Anderson Paints: Project NPV IRR Risk LOM $1,500 12.5% High QUE 0 11.0 Low YUP (800) 10.0 Average DOG (150) 9.5 Low As the capital investment manager you must account for the risks associated with capital budgeting projects before making final recommendations and decisions. The company’s capital investment risk management policy calls for an adjustment of the firm’s average required rate of return by plus/minus 2% if a project’s risk deviates from the firm’s average risk classification. The table above shows the estimated profitability of each project using the average required rate of return of the company and disregarding any deviation of each project’s risk from the firm’s average. Your job as the capital investment manager is to account for differences in risk in each project according to company’s policy and to make recommendations regarding the acceptability or non-acceptability of each potential investment as part of the upcoming proposed firm’s capital budget. First, explain how you would adjust each project’s required rate of return for risk using the risk management policy of the company and discuss the appropriateness of the firm’s risk management policy. Second, insert a column in the table above showing the appropriate risk-adjusted required rate of return or discount rate for each project. Third, explain which of the projects listed above you would recommend and why for the upcoming firm’s capital investment budget. Case Rubric Capstone 4 Milestones 3 2 Benchmark 1 Understanding of Problem or Issue Presents accurate and detailed de- scription of the problem or issue central to the case With minor exceptions, identifies and outlines the principal problem or issue in the case; Partially recognizes the problem or issue of the case; displays some understanding of the problem or issue Does not recognize the problem or issue of the case; displays little understanding of the problem or issue. Connections to Financial Con- cepts and Theory Presents accurate and detailed connections between the problem or issue and relevant financial concepts and theory With minor exceptions, identifies and outlines connections between the problem or issue and relevant financial concepts and theory Makes some or weak connection between the problem or issue and relevant financial concepts and theory Makes no connection between the problem or issue and relevant fi- nancial concepts and theory Analysis and Evaluation Presents an in-depth and critical assessment of the facts and tasks required by the case With minor exceptions, provides factual analysis of the case and performs all of the required case tasks using the information pro- vided in the case Provides some factual analysis of the case and performs some of the required case tasks using the in- formation provided in the case Simply repeats facts identified in the case and fails to perform re- quired case tasks supported by the information provided in the case Action Plans Effectively weighs and assesses the information provided in the case by thoroughly outlining a set of recommendations to deal with the problem or issue in the case With minor exceptions, outlines and summarizes appropriate rec- ommendations to deal with the problem or issue; the proposed recommendations are based on the information provided in the case Outlines and summarizes some recommendations for action to deal with the problem or issue; in most instances, recommendations are based on the information pro- vided in the case Does not provide appropriate rec- ommendations for action or rec- ommendations do not address the key problem or issue