Share
Explore BrainMass

Capital Budgeting

Capital Budgeting - NPV IRR MIRR Payback WACC

Look at a potential new product; a fertilizer that your company's R&D people developed for use on lawns. Your company's marketing manager thinks you can sell 22.500 bags in the first year and that volume will increase by 10% in each year thereafter for the next 3 years after which time the product will become obsolete when repla

Should you purchase the company?

You are thinking about acquiring a new company. The company is at a bargain asking price of $400,000. You have your expert accountants project a 10 year income statement (see below) based on how well you think you could run this new venture. Now you need to project a ten year cash flow and determine if you should acquire this

Finance: Capital Budgeting

The Durst Equipment Company purchased a machine 5 years ago at a cost of $100,000. It had an expected life of 10 years at the time of purchase and an expected salvage value if $10,000 at the end of the 10 years. It is being depreciated by the straight line method toward a salvage value of $10,000, or by $9,000 per year. A new m

Discuss IRR, NPV, and accounting rate of return for capital budgeting techniques.

I. "It is a matter of indifference whether investment projects are selected by the internal rate of return method or the next present value method." Discuss the circumstances in which this statement may not hold. ii. Why cannot the accounting rate of return be used as a reliable capital budgeting technique? What are its ad

Calculating the MIRR

I can follow the textbook example calculating MIRR until its final step. 9720 6000 = --------- (1 +MIRR)^3 MIRR = 17.66% Can you please show how to arrive at the 17.66%.

Quick Printing: NPV, IRR and profitability index of a project

Quick Printing is considering the purchase of a new printing press. The total installed cost of the press would be $2.2 million. This outlay would be partially offset by the sale of an existing press. The old press which cost $1 million 10 years ago, has zero book value and can be currently sold for $1.5 million before taxes. As

Par yields for bonds

Zero rates - 6 months= 4.0816% 12 months= 5.1957% 18 months= 5.5176% 24 months= 5.8937% What are the 6-month, 12-month, 18-month par yields for bonds that provide semi-annual coupon payments? Estimate the price and yield of a two-year bond providing a semi-annual cou

For the WACC, use 7.50%. I fixed the WACC rate for everyone so you will not have to attempt to calculate it from your chosen company. This will save you time. So you will not need to calculate the WACC, only explain it in your paper. You will be calculating 1) Depreciation, 2) Tax Rate, 3) Taxable Income, 4) NOPAT, 5) Net Cash Flow, and the two major calculations- NPV & IRR.

See attached File. Capital Budgeting Analysis I have attached a Unit 3 Professional Challenge- Blank Answer Template. The cells that need to be filled in are in the color gray. Virtually all of the cells should have formulas (or linked to other cells) in order to show the work and logic. You must use formulas for your calc

Net Present Value Calculations motorcycle company

6.1 You and your friends are thinking about starting a motorcycle company named Apple Valley Choppers. Your initial investment would be $500,000 for depreciable equipment, which should last 5 years, and your tax rate would be 40%. You could sell a chopper for $10,000, assuming your average variable cost per chopper is $3000, and

Cummings Products Co: NPV and IRR analysis for Project A and B

Cummings Products Company is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: Expected Net Cash Flows Year Project A Project B 0 ($300) ($405) 1 (387) 134 2 (193) 134 3 (100) 134 4 600 134 5 600 134 6 850 134 7 (180) 0 a. Construct NPV profiles for Projects A a

Net Present Value Analysis for Kent Duncan's self-service car wash

See the attached file. 13.24 Complete the following exercise, using this Excel template, and respond to at least two of your fellow students' postings. In eight years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be managed in the free time he has available fr

Depreciation of new processing line for capital budgeting

X Company is considering the acquisition of a new processing line. The processor can be purchase for $3,750,000; it will have a 10 year useful life. It will cost $165,000 to ship and $85,250 to install the processor. A recently completed feasibility study that was performed at a cost of $65,000 indicated that the processor would

Calculate after tax cash, NPV, IRR for a Windmill New Machine

The Wee Willie Windless Windmill Corporation is considering the replacement of a machine that was purchased five years ago for $10,000. At the time of the purchase it was expected to have a useful life of 10 years and no salvage value. Wee Willie has located a smaller firm that would purchase the used machine for $6,000 if Wi

Capital Budgeting and Cash Flow

Please assist me with the problems below. 3. The Cooper Electronics Company has developed the following schedule of potential investment projects that may be undertaken during the next six months: Project Cost (in Millions of Dollars) Expected Rate of Return A $ 3.0 20% B. 1.5 22 C 7.0 7 D 14

Cash Budgets/Dividends

Please see the attachment. Robert recently inherited a stock portfolio from his uncle. Wishing to learn more about the companies in which he is now invested, Robert performs a ratio analysis on each one and decides to compare them on each other. Some of his ratios are listed below. Ratio Island Electric Utility B

Ms. Sweeney's two projects: NPV of each; IRR. Which method is better?

Ms. Sweeney, is considering two investment opportunities. Because of limited resources, she will be able to invest in only one of them. Project A is to purchase a machine that will enable factory automation; the machine is expected to have a useful life of four years and no salvage value. Project B supports a training program th

Assess current borrowing rates, new projects, capital rationing

1. Besides the rate of return, what additional factors should a firm consider in its capital expenditure decisions for its international subsidiaries and JVs? 2. Based on the current borrowing rates, why would (or wouldn't) a firm want to invest in international capital projects today? In today's economic environment, would

Three Proposals for a Nicrocomputer Network

See the attachment. Gavin and Alex, baseball consultants, are in need of a microcomputer network for their staff. They have received three proposals, with related facts as follows: Proposal A Proposal B Proposal C Initial investment in equipment $90,000 $90,000 $90,000 Annual cash increa

Corporate Finance: 10 questions

3. The McCue Company has equal amounts of low-risk, average-risk, and high-risk projects. McCue estimates that its overall WACC is 12%. The CFO believes that this is the correct WACC for the company's average-risk projects, but that a lower rate should be used for lower risk projects and a higher rate for higher risk projects. T

Pernelli Scenario: Stock Index Futures

Scenario: Jim Pernelli and his wife, Polly, live in Augusta, Georgia. Like many young couples, the Pernellis are a 2-income family. Jim and Polly are both college graduates and hold high-paying jobs. Jim has been an avid investor in the stock market for a number of years and over time has built up a portfolio that is currently w

Depreciation in capital budgeting; Rowell Company's new building

1. Which of the following statements is CORRECT? a. Because depreciation is not a cash expense, it plays no role in capital budgeting. b. Under current laws and regulations, corporations must use straight-line depreciation for all assets whose lives are 3 years or longer. c. Under MACRS depreciation, firms write off as

Inflation and Capital Budgeting

There are two ways to incorporate inflation into capital budgeting analysis. One way is to express cash flows in constant dollars (at the time of analysis) and adjust the discount rate by removing the inflation premium. Another way is to use the nominal discount rate while converting cash flows into current dollars (at the time

Depreciation and capital budgeting

In capital budgeting analysis, a proposed project is typically evaluated based on cash flows. Since depreciation is non-cash expense, it is irrelevant in capital budgeting analysis. Is the statement true or false? Explain

Present Value of Note and Gain on Sale

On January 1, 2010, Fishbone Corp sold a building that cost $250,000 and had accumulated depreciation of 100,000 on the day of the sale. Fishbone received as consideration a 240,000 noninterest-bearing note due on January 1, 2013. There was no established exchange price for the building, and the note had no ready market. The

Capital budget

You are evaluating a capital budget analysis by one of the operating divisions that list the following cash flows in their analysis. Based on incremental cash flows, your evaluation finds some are not relevant. Discuss each of the five cash flows as to its relevancy and if it should be included in the analysis or excluded.

Salvage Value and net present value

A Restaurant is analyzing a project that requires $180,000 of fixed assets. When the project ends those assets are expected to have an after-tax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project? a. reduction in the cash outflow at time zero b cash inflow