Tasks 1 to 4 from case outline, page 5 – Forecasting cash flows, calculation of corporation cost of capital and various profitability measures (60%)
• Based on the cash flows and cost of capital for each
option, calculate each option’s IRR and NPV. Which option creates more value? In presenting your results, provide justification as to why you have selected one proposal over the other. This will require a discussion of the pros and cons of the valuation methods presented in the proposal. My part in Task 1 to 4.
On page 4 of the case, there is an errata, it should read:
Operating costs (not including loan repayments) are expected to be 50% of revenues. The tax rate for the venture is 25%.
http://sk.sagepub.com/cases/download/san-marcos-municipal-events-center-a-capital-
budgeting-case?format=case
In addition to tasks 1 to 6 in presented on page 5 of the case, please complete the
following task:
7. Analyze the sources of uncertainties in the estimations; how confident are you about
the calculations and cash flow assumptions? What, if any, additional information would
you require to decrease the uncertainties involved in the proposals and to make a more
informed decision as to the optimal investment opportunity? Justify your response.
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