| Course | GF520 Corporate Finance |
|---|---|
| Unit | Unit 4 |
| Paper type | Capital budgeting analysis |
| Length | About 1,130 words, 7 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF520 Unit 4
A $4.8 Million Packaging Line at 9 Percent: A Unit 4 Capital Budgeting Analysis With Every Input Shown
[Student Name]
Purdue University Global
GF520: Corporate Finance
Unit 4 Capital Budgeting Analysis
[Instructor Name]
[Date]
The bottler, the machine and every figure are composite and illustrative; the articles and textbooks cited are real.
The Decision
The bottler fills about 180 million cans a year on two lines. Its older line uses manual case packing and loses product to jams and mislabeled cases. Engineering proposes replacing the end of that line with an automated packer, labeler and palletizer. The question is whether the cash the machine saves, after tax and over its life, is worth more today than the cash it costs.
Assumptions Panel
Every input is listed with its source so a reader can challenge any one of them.
1. Installed cost: $4.8 million, from the vendor's quote including installation and testing.
2. Added working capital: $350,000 of spare parts and packaging inventory, recovered at the end of the project.
3. Annual savings: $1.75 million, made up of $1.32 million of labor from six fewer packers across three shifts and $430,000 of scrap and rework, from plant records.
4. Opportunity cost: $120,000 a year of rent forgone on floor space currently leased to a neighboring warehouse operator, which the new line would occupy.
5. Life: six years, the vendor's guidance for the controls before a major upgrade.
6. Depreciation: straight line to zero over six years, $800,000 a year.
7. Salvage: $400,000 at the end of year 6.
8. Tax rate: 24 percent.
9. Discount rate: 9 percent, the firm's weighted average cost of capital, appropriate because the line replaces existing capacity and carries the firm's ordinary risk.
Two items are deliberately excluded. A $200,000 feasibility study has already been paid and cannot be recovered whatever the decision, so it is a sunk cost. A share of plant overhead allocated to every line by the accounting system is also left out, because total overhead does not change if the machine is bought. Including either would understate the project's value by mixing past or unchanged costs with incremental ones (Brealey et al., 2023).
Cash Flows
Year 0. The outlay is $4.8 million for the machine plus $350,000 of working capital, $5.15 million in all.
Years 1 to 6. Savings of $1.75 million, less the $120,000 of forgone rent, give $1.63 million of added pretax cash. Subtracting depreciation of $800,000 leaves $830,000 of added taxable income, on which tax is $199,200. Operating cash flow is therefore $1.63 million less $199,200, or about $1.431 million a year. The same figure results from adding depreciation back to after-tax income: $630,800 plus $800,000.
Year 6 terminal flow. The machine sells for $400,000. Because it is fully depreciated, the whole amount is taxable, leaving $304,000 after tax. Working capital of $350,000 is recovered. The terminal inflow is $654,000, received on top of the year 6 operating cash flow.
Results
1. Net present value at 9 percent: the six operating flows are worth $6.418 million today and the terminal flow $390,000, a total of $6.808 million against the $5.15 million outlay, leaving about $1.66 million.
2. Internal rate of return: about 18.7 percent.
3. Payback: $5.15 million divided by $1.431 million a year, about 3.6 years.
4. Profitability index: $6.808 million divided by $5.15 million, about 1.32.
All four measures agree that the line should be bought. The decision rests on net present value, because it states the value added in dollars at the firm's own cost of capital; payback ignores everything after year 4, and the internal rate assumes cash can be reinvested at 18.7 percent, which the firm cannot assume. Surveys find that most large firms compute net present value and internal rate together, with payback used as a secondary check (Graham & Harvey, 2001).
Charging the forgone rent as a cost reduces the project's value by about $410,000, more than the excluded feasibility study, so the opportunity cost a junior analyst might overlook matters more to the answer than the sunk cost a junior analyst might wrongly include.
Why Accounting Profit Is Not the Test
The plant's accounting report would show the line adding about $630,800 a year to net income after depreciation, a return on the $4.8 million cost of about 13 percent. That figure is useful for explaining the project to plant managers, but it is not the basis for the decision. It ignores the timing of the outlay, treats depreciation as a cost even though no cash leaves the firm, and leaves out the working capital tied up for six years. Cash flow, discounted at the rate investors require, is the measure that tells the board whether the firm is richer for buying the machine.
The analysis also treats the savings as level for six years. In practice wage rates rise, so labor savings would probably grow, while scrap savings could shrink as the old line's problems are forgotten. Holding them flat is a deliberately plain assumption that keeps the result easy to audit.
Sensitivity
Each critical input was varied while the others were held at their base values.
Savings. If annual savings fall 20 percent, to $1.40 million, net present value drops to about $465,000, still positive. Savings must fall to about $1.26 million, 28 percent below forecast, before the project loses value. Because labor savings depend on headcount reductions the plant controls, a shortfall of that size is unlikely, though scrap savings are less certain.
Discount rate. At 11 percent, two points above the firm's rate, net present value is about $1.25 million. The decision is not sensitive to the rate within any reasonable range.
Life. If the controls need replacing after five years rather than six, with depreciation over five years, net present value falls to about $990,000. Life matters more than the rate.
Risks Not Captured in the Numbers
Three risks sit outside the model. Installation could disrupt production for longer than the planned two weekends, costing lost sales. The labor savings depend on reassigning or releasing six employees, which raises questions the operations and human resources teams must settle before purchase. And a move to new can sizes would require changeover parts that the quote does not include. None of these is likely to erase $1.66 million of value, but each should be addressed in the project plan (Ross et al., 2022).
Recommendation
Approve the packaging line. Its net present value of about $1.66 million at the firm's 9 percent cost of capital remains positive unless savings fall by more than a quarter, and the analysis has charged it with the floor space it displaces. Approval should be conditional on a signed installation schedule that limits downtime and a staffing plan for the six packing positions.
References
Brealey, R. A., Myers, S. C., & Allen, F. (2023). Principles of corporate finance (14th ed.). McGraw Hill.
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Ross, S. A., Westerfield, R. W., Jaffe, J., & Jordan, B. D. (2022). Corporate finance (13th ed.). McGraw Hill.
The Purdue Global GF520 Unit 4 instructions
Unit 4 in GF520 asks for a full capital budgeting analysis of one investment. List every assumption with its source before any calculation, and say explicitly which costs are excluded as sunk or unchanged and which are included as opportunity costs. Build incremental after-tax cash flows: the initial outlay with working capital, operating cash flow each year, and a terminal flow with after-tax salvage and recovered working capital. Discount at a rate suited to the project's risk and report the four usual measures, from value added and internal return to payback and the profitability index, explaining which one decides and why. Test the inputs most likely to change the answer, reporting the break-even value for the most important one. Note risks outside the model. Close with a recommendation and any conditions. Cite the textbook and research on capital budgeting practice in APA 7.
Inside the GF520 Unit 4 example
The sample opens with the decision and a nine-item assumptions panel, then sets aside the $200,000 study and allocated overhead with a reason for each. The cash flow section walks through year 0, the annual flow computed two ways, and the year 6 terminal flow of $654,000. Four results follow, with an explanation of why net present value governs and Graham and Harvey's survey of how firms use the measures. The highlighted sentence compares the dollar effect of the rent charge with that of the sunk study. A section explains why accounting profit of about $630,800 a year is not the test. Sensitivity runs show savings can fall 28 percent before value disappears, and a shorter life matters more than a higher rate. Risks outside the numbers and a conditional approval close the analysis.
Where the points sit in the GF520 Unit 4 rubric
GF520 capital budgeting rubrics award most points for correct incremental cash flows. Graders look for working capital in the outlay and its recovery, after-tax salvage, depreciation handled through its tax effect, sunk costs excluded and opportunity costs included. Each must be explained, not just applied. The next share goes to correct decision measures and a clear statement of which one decides. Sensitivity analysis earns significant credit when it identifies a break-even and compares the importance of different inputs. Instructors in this MS in Finance course also value attention to risks the model cannot capture. A recommendation with conditions shows the analysis is meant for a manager. A transparent assumptions panel and APA 7 entries for Brealey, Graham and Harvey, and Ross finish the scoring.
GF520 Unit 4 help: mistakes that cost points
The most common GF520 Unit 4 error is counting a sunk cost, such as a study already paid for, or an allocated overhead charge that does not change. The opposite error, leaving out an opportunity cost like forgone rent, is just as frequent and often larger. Working capital is forgotten at the start or never recovered at the end. Salvage value is entered before tax. Depreciation is subtracted as if it were cash. Some analyses report four measures and never say which one decides. Sensitivity is skipped or limited to the discount rate, which rarely matters most. For any asset your case describes, follow the same path: list assumptions, classify costs, build after-tax flows, discount, test and recommend.
Get a GF520 Unit 4 example written to your instructions
Send the project data from your GF520 Unit 4 case, the rate your section expects, and the rubric. The analysis arrives with an assumptions panel, an incremental cash flow table, all four measures and sensitivity on the input that matters. A spreadsheet can accompany the write-up when one is required. No charge applies to the first custom sample; allow 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GF520 Unit 4 questions, answered
Should depreciation appear in the cash flows?
Only through its tax effect. Depreciation is not a cash payment, so it is added back, but because it reduces taxable income it saves real cash equal to the depreciation multiplied by the tax rate. In the sample that shield is 192,000 dollars a year. An analysis that subtracts depreciation as a cash cost, or ignores the shield entirely, misstates every operating year of the project.
Why is the feasibility study left out?
Because it has already been paid and will not change whichever way the decision goes. Only cash flows that differ between accepting and rejecting belong in the model. The same logic removes overhead that would be allocated to the project but not actually increased by it. Including either one is among the most frequent deductions in capital budgeting work, and graders often check for it first.
Does MACRS depreciation change the analysis?
Only in timing. The sample would follow the schedule the case gives, applying each year's MACRS percentage to the depreciable base and computing the tax shield year by year. Faster depreciation moves tax savings earlier, which raises net present value slightly without changing total depreciation. The custom version also taxes salvage against the remaining book value under that schedule rather than against zero.
Where can I find a free GF520 Unit 4 sample paper?
A complete GF520 Unit 4 capital budgeting analysis of a $4.8 million packaging line is available here, with an assumptions panel, cash flows, four decision measures, sensitivity tests and APA 7 references.
Why is the forgone rent charged to the project?
The floor space could otherwise be leased for $120,000 a year. Using it for the new line gives up that income, so it is a real cost of the decision even though no check is written.