I would appreciate receiving a detailed draft response to the questions posed in the attached case study regarding capital budgeting. Please show any formulas and references used. References available on the Internet would be helpful.
Capitalbudgeting projects include all of the following with the exception of
the purchase of a six-month treasury bill.
the expansion of a plant.
the development of a new product.
the replacement of a piece of equipment.
Capitalbudgeting is needed to properly allocate the large dollar amounts for major expansion and equipment purchases. The process is often perceived by employees as being very political. What procedures should an organization use to eliminate that perception and to provide for a good, consistent evaluation of capital projects?
In general, the value of land currently owned by a firm is irrelevant to a capitalbudgeting decision because the cost of the property is a sunk cost?
a. True.
b. False.
Given the following project cash flows, identify the correct statement(s). The firm's cost of capital is 15%.
Cash Flow
0 -50
1 150
2 75
3 -10
I. This project will have two IRRs.
II. The NPV of the project is $180.57.
III. The profitability index of the project is 2.61.
IV. The payback period of
Most firms generate cash inflows every day, not just once at the end of the year. In capitalbudgeting, should we recognize this fact by estimating daily project cash flows and then using them in the analysis? If we do not, are our results biased, and if so, would NPV be biased up or down? Explain.
In essence, capitalbudgeting is the process of:
a. Deciding what to do with the firmâ??s money
b. Deciding how much capital the firm needs
c. Deciding where to get the money for capital investment projects
d. Deciding when to invest in a new project
Which of the following cash flows is an â??incre
