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Capital Budgeting

Finance - Capital Budgeting

Capital Budgeting Extra Inc. is considering an investment in a new $35M power supply project. The project's cost will be depreciated evenly over its 5 year life and have a salvage value of $3.5M. At the end of five years, the company would like to scrap the project and sell all related assets for 150 percent of its book val

Roethlis Partners: Straight line depreciation in analyzing an investment project

Roethlis Partners has compiled the following data for a potential venture: Investment: $20,000; 5-year useful life, with no salvage value; Annual Sales Revenue = $10,000; Annual Cash Costs = $4,200 Roethlis imposes a required rate of return of 10%. Roethlis faces a 20% tax rate on income, and knows that the tax authori

Capital Budgeting

If the intital investment is $6.45 M and the net operating cash flow is 2.45 M for 5 years at a 8% cost of capital what is the: Payback? Discounted Payback Rate? NPV? Profitability Index? IRR? MIRR?

Net present value of annuities

1. What is the present value of the following annuities? a. $2,500 a year for 10 years discounted back to the present at 7 percent b. $70 a year for 3 years discounted back to the present at 3 percent 2. Napa Valley Winery (NVW) is a boutique winery that produces a high-quality, nonalcoholic red wine from organically gro

Net Present Value

A networking firm is considering purchasing a new network that costs $82k. It requires an additional working captial of $13k. It has an anticipated 80 year life that will generate an additional revenue of $33k per year with operating cost of $15k, excluding depreciation. At the end of its life it will have a salvage value of $9

Capital Budgeting Process

1. What are the elements of the capital budgeting process? How would you conduct a capital budgeting analysis for a global project? How would you conduct the capital budgeting process, such as the calculation of NPV and IRR, from the perspective of the host country? 2. How would you conduct the capital budgeting process from

Discount Rate Explanation

What is a discount rate? Describe at least two different means to arrive at an appropriate one. What are some disadvantages of any given discount rate? What are some strengths and weaknesses of the Capital Asset Pricing Model? How would someone utilize Capital Asset Pricing Model in a financial decision-making process?

Financial management questions

1. Firm A employs a high degree of operating leverage; Firm B takes a more conservative approach. Which of the following comparative statements about firms A and B is true? A) A has a lower break-even point than B, but A's profit grows faster after the break-even. B) A has a higher break-even point than B, but A's profit gr

Capital Budgeting Project

Suppose you are a manager considering a capital budgeting project. You have examined the proposed project and, according to every relevant piece of information you can find, you feel that the project should be undertaken. After submitting your analysis, the division head informs you that the project has not been approved for f

Deer Valley Lodge-Make or buy analysis

Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the


PQR Company is considering an investment in a piece of equipment that costs $25,000, has a useful life of four years, and generates annual savings net of taxes (i.e., ignore taxes for this problem) of $10,000 per year. Management uses a 14% discount rate for its minimum. 1. What is the NPV? 2. What is the Payback Period? 3. W

Finance Questions

Hello, Attached you will find two finance problems. Please show all the formulas and steps for both of the problems so that they can be understood completely. Thank you Finance Questions 1. Calculate the internal rate of return on the following projects. Make sure to include all calculator key strokes or show Excel wor

Practice Problems

I am looking for a detailed explanation of the problems and the work detailed so as to help me to achieve better understanding of the material. 1. You invest a single amount of $10,000 for 5 years at 10 percent. At the end of 5 years you take the proceeds and invest them for 12 years at 15 percent. How much will you have afte

Red Flags

One step in assessing the quality of earnings is to look for red flags. An example of a red flag is a significant increase in accounts receivable without commensurate growth in sales (that is, accounts receivable turnover decreases). can you list and discuss at least five other red flags the astute analyst might look for, expla


1. An increase in the discount rate: A) will increase the present value of future cash flows. B) will have no effect on net present value. C) will reduce the present value of future cash flows. D) is one method of compensating for reduced risk. 2. Suppose an investment has cash inflows of R dollars at the end of

Capital Budgeting: Investing in New Equipment and Work Space

1. Prince Company's required rate of return is 10%. The company is considering the purchase of three machines, as indicated below. Consider each machine independently. For this question, ignore income taxes. (a) Machine A will cost $25,00 and have a life of 15 years. Its salvage value will be $1,000, and cost savings are p

Capital budgeting proposals (annual cash inflows and net present value)

Chose the correct answer A corporation is assessing the risk of two capital budgeting proposals. The financial analysts have developed pessimistic, most likely, and optimistic estimates of the annual cash inflows which are given in the following table. The firm's cost of capital is 10 percent. Project A Initial Investme

1000 words

Write a memo to the general manager explaining your analysis for the specialty spark plug project. Include the following information: Present the NPV and IRR calculated for the purchase of new equipment (Phase 3 task 1). Explain the effect of a sales volume increase on the total fixed costs, unit fixed costs, total vari

Simple Rate of Return

Chateau is winery in France, which is headed by Gerald Despinoy. Doing the fall season, is the busiest part of the year, and partime workers are hired to pick and process grapes. Gerald is currently looking for a harvesting machine to reduce the labor needed for picking. Addl info :( = represent French currency euro The w

Perference Ranking of Projects

Dimple Company has limited funds available for investments and must ration the funds among four competing projects. Selected information on the four projects follows: Project Investment Net Present Life of the Internal Rate Required Value Project (yrs) of Return A $800,000 $221,615 7 18% B $675,000 $210,000 12

Net Present Value Analysis

Rob plans to retire in 6 years and want to open some type of small business operation that can be managed within his free time away from his regular occupation. He's thinking about opening a Laundromat, he has determined the following: 1. Washers, dryers, and other equipment needed to open cost $194,000 2. 6,000 in working ca

Metro Car Washes: Reviewing an Investment Proposal

Metro Car Washes, Inc. is reviewing an investment proposal. The initial cost as well as the estimate of the book value of the investment at the end of each year, the net after-tax cash flows for each year, and the net income for each year is presented in the following schedule. The salvage value of the investment at the end of e

Making capital investment decisions

The accountant of your business has recently been taken ill through overwork. In his absence his assistant has prepared some calculations of the profitability of a project, which are to be discussed soon at the board meeting of your business. His workings, which are set out below, include some errors of principle. You can assume

Integrative Problem Chapter 22 Questions and Chapter 21 problem #3

Integrative Problem Chapter 22 Questions 1. You purchase machinery for $23,958 that generates cash flow of $6,000 for five years. What is the internal rate of return on the investment? 2. The cost of capital for a firm is 10 percent. The firm has two possible investments with the following cash inflows: ____________________

Accounting Risk in Capital Budgeting

1. Which of the following is NOT an acceptable method of accounting for risk in capital budgeting? A) Certainty equivalent approach B) Beta distribution analysis C) Probability trees D) Scenario analysis 2. Famous Danish Corp. is replacing an old cookie cutter with a new one. The cookie cutter is being sold for $25,000

Capital Budgeting

Semi-con is considering a new investment proposal that involves manufacturing and selling a new semiconductor chip . They have identified a operational manufacturing plant that is available for lease, and eleven key sales districts. They have assembled the following information: ?Revenues are expected to be $1,500,000, $1,250