Free Capital Budgeting Spreadsheet

Capital Budgeting
Capital Budgeting is the process of analyzing a company's investment decisions such as investing in new
equipments, machineries, plants, projects and products. This process involves the estimation of the
expected cash flows, the calculation of the Net Present Value (NPV) and the calculation of the Internal Rate
of Return (IRR) of the investment. Net Present Value is defined as the present value of all cash inflows
minus the present value of all cash outflows. If NPV is positive, the investment is making money and is thus
viable. Internal Rate of Return is defined as the discount rate that makes the Net Present Value zero. If the
IRR is greater than the opportunity cost of capital then the investment is feasible. The greater the value the
IRR, the more feasible an investment is.
There are two hurdles in this analyzing process. One involves the correct estimation of the expected cash
flow. The other is the use of a correct discount rate (also known as the Project Cost of Capital). In some
cases, it is possible to simply use the Company' Weighted Average Cost of Capital (WACC) as the Project
Cost of Capital. This is especially the case if the project has similar cost structure as the company. In other
cases, a separate estimation or assumption of the Project Cost of Capital is required.
This Capital Budgeting spreadsheet aims to assist investors, managers or analysts in correctly estimating the
cash flow in different scenarios and accurately calculating the Net Present Value and Internal Rate of Return.
It also allows different investment projects cash flow to be compared and the forecasting of base case, worst
case and best case scenario.

Calculating the NPV and IRR of a Project Investment

The CapitalBudgeting-ProjectCashFlow-NPV worksheet in the Capital Budgeting spreadsheet allows you to
key in the assumptions and estimates of a project cash flow and will calculate the Net Present Value and
Internal Rate of Return of the investment.
Assumptions
This worksheet performs capital budgeting analysis by making three basic assumptions. The assumptions
are the Discount Rate to use in the investment project, the company's Tax Rate and the estimated
percentage of Net Working Capital over Sales.

Projected Income
The net income of the project is calculated by using the following formula:
Net income = Earnings before Interest & Taxes (EBIT) - Taxes
where
EBIT = Net Sales - Total Variable Costs - Total Fixed Costs - Depreciation

Projected Cash Flows

This section is where the estimated cash flows are calculated. The Operating cash flow is defined as follows:
Operating cash flow = EBIT + Depreaciation + Taxes

Net Working Capital

The Net Working Capital at Year 0 can be entered directly into the spreadsheet. From Year 1 onwards, it is
calculated as as function over Net Sales as follows:
Net Working Capital = Net Working Capital over Sales * Net Sales
Net Working Capital cash flow is calculated as follows:
Net Working Capital cash flow = -(Current Year Net Working Capital - Previous Year Net Working Capital) +
NWC Recovery at end

Investment (Capital Spending)

The project investment and salvage value are taken into account in this section.
Aftertax salvage value is calculated as follows:
Aftertax salvage value = Salvage value * (1 - Tax Rate)
Net Capital Spending is calculated as follows:
Net Capital Spending = Initial Investment + Aftertax salvage value
Project Total Cash Flow
The Discounted cash flow uses the Time Value of Money to discount the Total project cash flow with the
assumed Discount Rate. Total project cash flow is calculated as follows:
Total project cash flow = Operating cash flow + Net Working Capital cash flow + Net Capital Spending
Net Present Value and Internal Rate of Return
Net Present Value is calculated using Excel's NPV function on the Total project cash flow. Internal Rate of
Return is calculated using Excel's IRR function on the Total project cash flow.

Download Free Capital Budgeting spreadsheet - v1.0

System Requirements
Microsoft Windows XP, Microsoft Windows Vista, Windows 7 or Windows 8
Windows Server 2003, 2008, 2012
512 MB RAM
5 MB of Hard Disk space
Excel 2002, 2003, XP, 2007, 2010, 2013
License
By downloading this software from our web site, you agree to the terms of ourlicense agreement.
Download
FreeCapitalBudgeting.zip (Zip Format - 95 KB)

Get the Professional version

Benefits

Unlocked

Allows removal of copyright message in the template

Allows commercial use within the company

Allows full customization of the model

Additional Worksheet for estimating Cash Flow before and after a Project Investment

Additional Worksheet for Scenario Analysis. Forecast for Base Case, Worst Case and Best Case

Details PDF Specifications

Bonus

Includes the Professional Inflation and Consumer Price Index Calculator Spreadsheet

Includes the Professional Weighted Average Cost of Capital (WACC) Calculator Spreadsheet

Price
USD69.00 - Purchase

5 Things You Should Never Do When Working with a Letter of Credit for the First
Time :

most of the times letter of credit is not the first payment option for exporters
and importers. Exporters and importers tend to choose other payment
options such as cash against document, advance payment or mixed
payments over letters of credit. But as situation dictates foreign traders have
to use letter of credit in international trade transactions. On this article I
would like to explain 5 most costly mistakes that exporters repeatedly make
in their lc operations.
Most costly mistake 1 : Doing a business with an importer to whom
you have no real information...
Business is not a virtual thing. You should have a real knowledge about your
counter party before starting to do any kind of transaction. I have seen a lot
of exporters who tried to finish a transaction without having a decent
information about their buyers by just trusting a letter of credit. Letter of
credit does not protect you against any immoral buyer.

Please answer below questions to understand how much you know about
your buyer.

Table 1 : Customer questionnaire

If you can not answer "yes" to all of these questions immediately, than you
should be starting to re-think about the whole business. If you answered
more than 1 question negatively, than you should be very careful about the
trade transaction in terms of risk issues.

Most costly mistake 2 : entering business offers which are too good
to be true...

In most cases scammers seduce exporters with unbelievable proposals. They

do not bargain for the prices, they order big quantities, they promise to pay
"at sight" not "usance" terms. As a buyer if you do not intend to pay anything
than sky would be the limit for you. You can propose whatever you think
would be necessary to seal the deal. These proposals can be sum up as "too
good to be true" type business offers. If you meet a buyer one day who is

promising very favorable conditions to you, please keep in mind that you
might be loosing money at the end.

Most costly mistake 3 : underestimating risk factors associated with

the transaction
Businesses turn around on risk and profit axis, more you take risks, more you
can get profit. But some exporters lost their common sense and take too
much risks to make more profit in a short perod of time. This behavior
associated with an extreme risk taking behavior. However normally you
have to understand your risks very well before signing any contract with your
buyer. Than you should take preventive steps to reduce each risk level to
acceptable degrees. If you would like to learn more about risk factors in a
letter of credit transaction please follow this link.

Most costly mistake 4 : "I can do it in my way" perception...

Letters of credit are different than other payment methods in international

trade in terms of flexibility. Banks play a key role on lc transactions. Letter of
credit rules are strictly followed by banks. As a result you have to prepare
required documents as per credit terms, latest letter of credit
rules and standard banking practices. Otherwise you can not get your
payment under a letter of credit.

Most costly mistake 5 : lack of knowledge...

As I have mentioned above letter of credit transactions are governed by one

of the most complicated rules of whole international trade practices. In order
to complete a letter of transaction without experiencing a negative result,
you need to understand how logistics, finance and governmental procedures
work very well. Also you need to be very careful when reading the credit
terms and conditions. You have to note down every detail and clarify each
point that can not be understood openly. Do not be shy asking questions to
issuing bank or confirming bank to comprehend the credit.

Presentations

| Home Page | Letter of Credit Consultancy | Our Services | CDCS

(Certified Documentary Credit Specialist) | About Us | Contact Us |

Letter of Credit Samples

letterofcredit.biz is your gateway to International Trade Finance World designed &
developed by a Certified Documentary Credit Specialist.
Most Recent Articles
Must Read Articles

Questions & Answers

How to Work with Letters of Credit

Case Studies and Examples

Must Read Articles

Most Recent Articles

Do you know the most biggest mistakes that exporters do when
working with a letter of credit for the first time?
5 Things You Should Never Do When Working with a Letter of Credit for the
First Time, titled article is written by Ozgur Eker. You can find important
failure points for unexperienced exporters.

Letter of Credit | About Us | Our Services | Contact | CDCS | Certified Documentary Credit
Specialist | 2009-2010 Letter of Credit Consultancy Services.

15 Common Used Terms OF Payment In China Export

Contract
1. Payments shall be made by net cash against sight draft with bill of lading attached
showing the shipment of the goods. Such payment shall be made through Bank of China.
The bill of lading shall not be delivered to the Buyer until such draft is paid - Payment Term
2. Within 15 days from the date of this Agreement,the Buyer shall establish an irrevocable
L/C with a first-class bank in compliance with the terms and conditions set forth in this
contract.
3. Payments for the goods specified herein shall not mean an acceptance thereof by the
Buyer with regard to its quality. All goods shall be accepted only after the Buyer's inspection
- Payment Term
4. All the payments shall be made in the US currency by the Buyer to the Seller by M/T to
the Seller's designated accounts with the bank in United States.
5. Payments shall be made by net cash against sight draft with bill of lading attached
showing the shipment of the goods.

6. The Buyer, on receipt from the Seller's shipping advice, shall open an irrevocable Letter of
Credit with the Bank of China, in favor of the Seller for the total value of shipment 25-30
days prior to the date of delivery. The L/C shall be available against the Seller's draft at
sight on the issuing bank for 100% invoice value accompanied by the shipping documents
specified in payment clause mentioned in sales contract. Payment shall be effected by the
issuing bank by T/T against presentation of the aforesaid draft and documents. The L/C
shall be valid until the 20th day after the shipment is effected - Payment Term
7. The Seller may present the sight draft together with the shipping documents through the
Seller's Bank to the Buyer for collection after shipment. Since D/P (documents against
payment) is agreed on, the collecting bank will deliver the documents against receipt of
payment.
8. Payment shall be effected by the Buyer, by M/T(Mail Transfer), within 7 days after receipt
from the Seller of the shipping documents.
9. The Buyer shall open a 100% confirmed, irrevocable, divisible and negotiable letter of
credit in favor of the Seller within 5 calendar days from date of the agreement through the
issuing bank. The letter of credit shall be drawn against draft at sight upon presentation of
the following documents:

Full set of the Seller's commercial invoice.

Full set of clean, blank, endorsed bill of lading.

Inspection certificate of quality and quantity.

10. The Buyer shall send a confirmed, irrevocable, and transferable letter of credit to be
drawn by sight draft to the Seller before Nov 20th, 2005. The letter of credit remains valid
until 15 days after the above mentioned delivery and will expire on Dec 30th, 2005.
Meanwhile, a deposit of 10% of the total price should be paid by the Buyer immediately
after signing the contract - Payment Term
11. Payment is effected by confirmed, irrevocable, transferable, and bank's acceptance L/C
at sight with partial shipment, remaining valid for negotiation in China until 15th day after
the date of delivery. In the meantime, the L/C should be opened in favor of the Seller within
15 days after the signing of the contract.
12. The Buyer shall open an irrevocable sight L/C through a bank acceptable to the Seller.
The L/C must reach to Seller 45 days before the date of delivery, valid for negotiation in
China until the 15th day after the latest shipment date Payment Term
13. The payment is effected by irrevocable L/C available by Seller's documentary draft at
sight to be valid for negotiation in China until 21 days after date of shipment. The L/C must
reach the Seller 30 days before the date of shipment.
14. The payment is made by D/P after 60 days sight. The Buyer shall duly accept the
documentary draft drawn by the Seller at 60 days sight upon first presentation and make
payment on its maturity. The shipping documents are to be delivered against payment
only Payment Term
15. The Buyer shall pay 100% of the sales proceeds in advance by M/T(Mail Transfer) to
reach the Seller not later than July 15,2005.

Tips on Payment Terms in

China
by Mike Bellamy of China Sourcing Information Center
QUESTION: Is it normal to pay 50% with purchase order and the balance prior to dispatch?
ANSWER: This is very normal for a first order with a new supplier. But everything is a
negotiation and there is no fixed payment format that is applicable nationwide or industry
wide. Sometimes buyers get better terms (for example, 30 up front and 70 upon delivery)

but I suspect the unit price would reflect this. In other words, if you are paying one supplier
a bit more upfront and another supplier less upfront, all other things (quality, lead-time,
service) being equal, you can expect to pay a bit more per unit for better payment terms.
Couple of tips.
1. If you dont ask for better terms they will not be offered to you. So go ahead and ask for
something better, it cant hurt. If this is your first order, then the supplier may also be
concerned about you defaulting on payment, just like you are concerned they will mess up
your order. Build trust over time and with each order ask for better and better terms. For
example, on this order you may say something like Ill accept your 50-50 terms for this
initial order, but I plan to pay on time and I plan to order regularly. So on the next order I
want 30-70 and the order after that I would like 30-70 net 15.
2. Far more important than worrying about 50-50 vs. 30-70 on the first order is to make
sure you have a plan for linking payment to performance. If you catch quality problems
after the final payment has been made, it really doesnt matter what the payment terms
were as it is too late to fix things. It is essential that you or a trusted 3rd party (called an
inspection agent or 3rd party QC) visit the production line to inspection the goods
BEFORE you make that final payment. If you have not done business with this supplier
before, then it is a good idea that you or a trusted 3rd party conduct an audit on the
supplier to ensure they can produce what they have promised.