Capital Budgeting Simulation.
Write a brief précis (maximum 3 pages- excluding tables, charts and exhibits) explaining what you actually decided in Year 1. You may consider the followings in your précis. ▪ What kind of projects did New Heritage have? Characterize them by division and by project attributes and the rationale for using the discount rate for each project. ▪ Generally, which collection of funded projects do you expect to be associated with good overall performance? Describe them by divisional or other attributes ▪ Explore differences between your decisions and the “Optimal” set. Why did your decisions differ from the optimal one? ▪ Identify reasonable and unreasonable points of difference. ▪ Suppose this is the only year in the simulation. What is the optimal allocation of the budget? How do you determine what’s optimal? ▪ Why is profitability index particularly helpful? ▪ Rank by profitability index and fund from highest to lowest; check the last project funded to determine whether a higher-NPV alternative is available and fundable even if it has a lower profitability index ▪ Rank the projects by using each metric (NPV, IRR, Payback, and Profitability Index) from best to worst.
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