When it comes to some non conventional capital expenditure budgeting, I find it little daunting to relate to Excel functions. To highlight my predicament, please allow me to share following scenario with you:
In cases where you spend money to improve the business (in our case we are planning to spend money to convert CAD files to new software), there are no tangible cash in-flows associated. We have the option to tender the project once to have the job completed at an investment cost of $ 2.0 million. An alternative option is to have the project completed in next 5 years (there is no urgency to convert all files) by spending a uniform amount of money each year, say, $ 50,000. So again there is an out-flow of cash costing us $ 2.5 million all up. I am struggling to find the right method to evaluate these both options to find the project with the better value.
How do you calculate options using Excel functions where no cash inflows are expected?
Regards
AK
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