A finished FIN-504 Topic 5 capital budgeting analysis example, with cash flows built, net present value computed and payback reported with its limitations stated. Searches like "fin 504 topic 5 assignment example", "fin504 topic 5 sample" and "fin-504 topic 5 example" land here.
What a finished FIN-504 Topic 5 capital budgeting analysis looks like
The finished example builds the cash flows before it discounts anything, since the arithmetic is straightforward and the inputs are where projects are misvalued. Only incremental flows appear: sunk costs are excluded explicitly, opportunity costs are included even though nobody writes a check for them, and the effect on other parts of the business is counted. Depreciation is handled as a tax shield rather than as a cash outflow, which is the mechanical point students most often get wrong. Net present value is computed at the rate built in the previous topic. Payback is reported and then criticized directly, since it ignores everything after the break point and the timing of money inside it.
How a FIN-504 Topic 5 example is structured
The example builds inputs, then applies criteria, then decides. It opens by identifying which cash flows are incremental and stating explicitly what has been excluded and why. A second section lays out the flows year by year, including the tax effect of depreciation and any change in working capital. A third computes net present value at the firm's cost of capital and states the decision rule plainly. A fourth computes payback and reports it. A fifth compares the two criteria, naming what payback ignores and why net present value answers the value question directly. A closing section makes a recommendation and states which input the conclusion is most sensitive to, so the reader knows where the risk in the answer sits.
Incremental flows only
Sunk costs excluded, opportunity costs included, and the effect on the rest of the business counted.
Depreciation as a tax shield
It moves no cash itself but changes the tax paid, which is the mechanical point most often mishandled.
A decision rule stated plainly
A positive net present value means the project creates value at the rate used, and the paper says it outright.
Payback reported and criticized
It ignores everything past the break point and the timing of money before it, so it screens rather than decides.
The most sensitive input named
Where the risk in the answer actually sits, so a reader knows which assumption to argue with.
Where marks go in FIN-504 Topic 5
Including sunk costs is the classic error and it is marked heavily, since money already spent cannot be affected by the decision and its inclusion changes the answer. A second failure is treating depreciation as a cash outflow, which double counts and understates the project, when its only cash relevance is the tax it saves. Papers lose marks for omitting working capital movements, which tie up cash at the start and release it at the end and are easy to forget entirely. Using payback as the deciding criterion inverts the ranking the topic teaches. Recommendations with no sensitivity comment present a single figure as though the forecast underneath it were certain, which no capital analysis should imply.
Get a FIN-504 Topic 5 example written to your instructions
Send the FIN-504 Topic 5 problems and the rubric posted in your classroom, with the project data your section supplied. We write a custom example to those criteria, with only incremental flows included, depreciation handled as a tax shield, both criteria computed and the most sensitive input named, in 24 to 48 hours. The first is free.
FIN-504 Topic 5 questions, answered
Why are sunk costs excluded?
Because they are unaffected by the decision. A feasibility study already paid for costs the same whether the project proceeds or not, so including it can make a value creating project look unattractive. The test for every flow is whether it changes as a result of this decision. Applying that test consistently also catches opportunity costs, which are easy to miss for the opposite reason.
How does depreciation enter the analysis?
Only through tax. Depreciation reduces taxable income, so it reduces the tax paid, and that reduction is a genuine cash saving. The depreciation charge itself moves no money and must not be subtracted as an outflow. The usual construction adds it back after tax has been calculated, which is why the layout of the cash flow schedule matters as much as the individual figures.
Is payback ever useful?
As a screen rather than a decision rule. It answers how long capital is at risk, which a manager may reasonably care about, particularly where liquidity is tight or the environment is uncertain. What it cannot do is say whether a project creates value, since it ignores everything after the cutoff and the timing of money before it. Report it, use it as context, and decide on net present value.