EMBA38 Finance Project Prompt and Rubric

Corporate
Finance
Project
Project Description
Orange Computers has transformed into one of the largest smartphone companies in the
world. Based on recent changes to the federal tax code, building phones in the US has
become more attractive. Orange wants to build a single factory in either Pennsylvania,
Texas, or North Carolina. Each state is offering incentives to woo Orange. Pennsylvania
and Texas have proposed building a new facility, while North Carolina is offering grants to
help renovate a recently closed factory.
Build a workbook to calculate the net present value and internal rate of return (rounded
to two decimal places) for each location over ten years using the information provided.
Determine where Orange should locate their factory and give a brief explanation of why.
Below are the pieces of information necessary to calculate the net present value and
internal rate of return:
1. The factories in Pennsylvania and Texas could produce and sell 20 million phones
annually, while the North Carolina factory could produce and sell 12 million.
2. Orange can sell all the phones produced at an average of $400 per phone in
20231. Orange forecasts that they can gradually raise the price of their phones by
2% per year over the next 10 years.
1
Assume upfront investments in land, factory, and equipment are made in 2022.
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Corporate Finance Project
3. A new factory would be 5 million square feet at a cost of $160/ft2 to build in

Pennsylvania or Texas. After grants, Orange would only need to pay $125/ft2 to
renovate the existing 3 million square foot factory in North Carolina.
4. Pennsylvania will lease publicly owned land for the factory to Orange tax free, but
the local government won’t waive the 1% annual property tax which is calculated
on the initial cost of the factory. The land in Texas will cost $20 million, and the
local property tax is 0.5%, calculated based on the initial cost of the factory plus
the cost of the land. Since there is an existing factory in North Carolina, there will
be no cost in purchasing the land, and the state has agreed to pay the local
property tax for 10 years.
5. Orange plans to spend $500 million on equipment for the new factories in Texas
or Pennsylvania. Salvage value for the equipment after 10 years is expected to be
10% of the equipment’s purchase price. North Carolina is offering to help pay for
the equipment which lowers the cost to $300 million, but it has added a caveat
that forces Orange to sell the equipment to the state for $1 when Orange disposes
of the equipment after 10 years.
6. Orange can depreciate 100% of the cost of equipment when it’s put into service
for tax purposes.2 (Since salvage value will be taxed as a gain at the end of 10
years, do not subtract it from the equipment’s value for depreciation.) All other
depreciation will be on a straight-line basis over 15 years. (Don’t forget that there
is no depreciation on land.)
7. The federal income tax rate for Orange is 21%. In their pursuit of new
manufacturing jobs, all three states have offered different incentive packages that
result in a state income tax equivalent to 3% for the first 10 years. State income tax
is not deductible on federal taxes, so the effective tax rate is 24%.
8. Orange plans on hiring 8,000 workers in Pennsylvania or Texas with a total annual
expense of $80,000 per worker. The factory in North Carolina would require
5,000 workers at $90,000 per year. Wage inflation is forecasted to be 5% per year
in Pennsylvania, 4% in Texas, and 3% in North Carolina over the life of the project.
9. For operational expenses, assume that fixed overhead will be 10% of annual sales
and cost of goods sold (excluding labor) will be 60% of annual sales at each
factory. Orange will also need to maintain a total of 10% of next year’s sales in
working capital. In other words, this is the cash that Orange will have to reserve
for this project. It cannot be used elsewhere in the company.3
2
The U.S. passed the Tax Cuts and Jobs Act (TCJA) in 2017, which allows companies to
depreciate 100% of the equipment cost in the same year that it is put into service. This is also
called Bonus Depreciation.
3
The case template has been pre-populated with the required formulas to capture working
capital movements from one year to another. Note that working capital is released at the end of
the project life (10 years).
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10. Orange keeps a stable debt-to-equity ratio of 0.8 and will use the same mix of
debt and equity to finance this project. The average interest rate on its debt is
only 3%, but its required rate of return on equity is 35%. Note that interest expense
is not included in operating income as the interest rate has already impacted the
weighted average cost of capital (WACC). Including interest expense in the
operating income will double-count the effect of interest on the project.
Learning Outcomes
When completed successfully, this project will enable you to:
● Use your knowledge of capital budgeting to project financial outcomes and
choose how to allocate resources between competing projects.
Assignment Requirements
● The main component of this case study is the workbook you create with the
provided information to calculate your net present values and internal rates of
return. Begin by downloading this template. When you open the template, you
may be prompted to enable or disable macros—please click “enable,” as the
macros used in this document help streamline the grading process.
● Once you’ve completed your sheet, complete the sentence in the “Conclusion”
box (on the “NC” sheet) with the correct response, as well as a brief rationale for
why you chose your answer.
● To submit this project, email your finalized sheet to projects@quantic.edu. Please
note that if you’re working in a group, your feedback will be emailed back to your
entire group. If you do not wish to reveal your email to the rest of your group,
email us at projects@quantic.edu to let us know.
● If you are submitting your Finance project as a group, you must also submit the
final page of the Group Project Agreement signed by all group members in
order to receive credit for the project (attached as a PDF to your submission
email).
Tips & Resources

● Make sure to go through our Capital Budgeting and Finance for Excel courses
before starting this project—these will help you prepare your workbook.
● Don’t forget—Quantic students have access to Microsoft Office Online, including
an online version of Excel. Follow these instructions to access it.
● If you have any questions, be sure to reach out to projects@quantic.edu for help!

Plagiarism Policy
Quantic takes academic integrity very seriously—we define plagiarism as: “Knowingly
representing the work of others as one’s own, engaging in any acts of plagiarism, or
referencing the works of others without appropriate citation.” This includes both misusing
or not using proper citations for the works referenced, and submitting someone else’s
work as your own. Quantic monitors all submissions for instances of plagiarism and all
plagiarism, even unintentional, is considered a conduct violation. If you’re still not sure
about what constitutes plagiarism, check out this two-minute presentation by our
librarian, Kristina. It is important to be conscientious when citing your sources.
When in doubt, cite! Kristina outlines the basics of best citation practices in this
one-minute video. You can also find more about our plagiarism policy here.
Corporate Finance Project Rubric

Scores 2 and above are considered passing. Students who receive a 1 or 0 will not
receive credit for the assignment, and must revise and resubmit to receive a passing
grade.
Score Description
5 ● Clearly addresses the case study prompt.

● Workbook is complete, accurate, and intelligible.
● All SIX of the three net present values and three internal rates of return
are accurate.
● Student arrives at the correct conclusion and an accurate rationale is
provided.
4 ● Clearly addresses the case study prompt.

● Workbook is complete and intelligible, and contains no more than three
minor errors.
● At least FOUR of the three net present values and three internal rates
of return are accurate.
● Student arrives at the correct conclusion and an accurate rationale is
provided.

3 ● Addresses the case study prompt.

● Workbook contains all necessary information, but is disorganized and
contains no more than six errors.
● At least THREE of the three net present values and three internal rates
of return are accurate.
● Rationale is lacking, OR student arrives at the wrong conclusion.
2 ● Somewhat addresses the case study prompt.

● Workbook is missing a few pieces of information or contains more than
nine errors.
● At least TWO of the three net present values and three internal rates of
return are accurate.
● Rationale is lacking AND student arrives at the wrong conclusion.
1 ● Barely addresses the case study prompt.

● Workbook is missing many pieces of information and riddled with
errors.
● Only ONE or NONE of the three net present values and three internal
rates of return are accurate.
● Rationale is missing.
0 ● The assignment is plagiarized, not turned in, or completely off topic.

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What are the three locations Orange is considering for the new factory?

What factors is Orange considering in determining the best location?

Corporate

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3. A new factory would be 5 million square feet at a cost of $160/ft2 to build in

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Tips & Resources

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Corporate Finance Project Rubric

5 ● Clearly addresses the case study prompt.

4 ● Clearly addresses the case study prompt.

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3 ● Addresses the case study prompt.

2 ● Somewhat addresses the case study prompt.

1 ● Barely addresses the case study prompt.

0 ● The assignment is plagiarized, not turned in, or completely off topic.

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