IBM Capital Budgeting Case Study Analysis

Introduction

The report contains the analysis of the capital budgeting project of IBM’s introduction of a new type of computer in the form of tablet, with operating power similar to a high-end desktop with the size of an IPad. The analysis includes projected free cash flows, NPV and a sensitivity analysis, under different given scenarios followed by the recommendations.

Data and Assumptions

Data and Information Gathered
in millions    
Property plant and Equipment (IBM) 2019 32028 Annual Report 2019 Balance Sheet
Revenue 2019 77147 Annual Report 2019 Balance Sheet
EBITDA 17569 Yahoo Finance
EBITDA/Sales 23% —-
Current US Federal Income Tax Rate 21.00% Deloitte
Initial Investment/PP&E 2019 10% Given
1st year revenue as % IBM’s total revenue (Assumed)  2019 7% Assumed
1st year revenue 5400 —-
Estimated Life 5 Given
% of NWC as sales 2019 0.93% Assumed
Cost of Capital 12% Given

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