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Capital Budgeting

Business finance practice questions

8. Using the constant growth model, a firm's expected (D1) dividend yield is 3% of the stock price, and it's growth rate is 7%. If the tax rate is .35%, what is the firm's cost of equity? a) 10% b) 6.65% c) 8.95 % d) More information is required. 13. Assume a corporation has earnings before depreciation and taxes


The IRR and NPV rules always lead to identical decisions if: a. The project's cash flows are conventional. b. The projects are mutually exclusive. c. The projects are independent. d. Both (a) and (b). e. Both (a) and (c). One investment opportunity should be rejected if its NPV is ________ and its IRR is ________. a. P

Net present value, payback, IRR, and accounting rate of return

Consider the following two mutually exclusive projects, each of which requires an initial investment of $100,000 and has no salvage value. The organization, which has a cost of capital of 15%, must choose one or the other (see attached) Cash Inflows (End of year) Year Project A Project B 1 $30,000

NPV and IRR multiple choice

There are two independent investment projects for the Galactic Empire. Project A costs the Empire $300,000 to set up, and it will provide annual cash inflows of $70,000 for 7 years. Project B costs the Empire $1,000,000 to set up, and it will provide annual cash inflows of $255,000 for 6 years. The Empire's cost of capital (i

Capital Budgeting Decision

Year Project A Project B 0 -$250,000 -$400,000 1 $100,000 $50,000 2 $80,000 $70,000 3 $60,000 $80,000 4 $40,000 $120,000 5 $20,000 $200,000 The above are two mutually exclusive investment projects for Rebel Alliance. The Alliance requires getting their invested amount fully paid back within 5 years. The Alli


Ferengi, Inc. is subject to an applicable corporate tax rate of 35 percent, and the weighted average cost of capital (WACC) of 12.5 percent. 1) Ferengi is currently contemplating two capital investment plans. Plan A: the upgrade of an information system with an installed cost of $2,400,000. The upgrade system will be deprec


Please help by providing a 125-word response to each of the following questions: How does a capital budget originate and what is it suppose to accomplish? How are corporate responsibilities divided in preparation of the budget? What are the advantages and disadvantages of the budget originating from top executive o

Net Profit and Float

Question 20 Beguiling Telecom Corp.'s customers send payments by check, which spend an average of 2 days in the mail. Processing of the checks requires 2 days, and BTC's bank delays availability of the checks for 2 days. Customers send their checks an average of 5 days after they receive their statements. Beguiling Telecom has


I need assistance with the attached two part assignment. I have also attached an example Spreadsheet. References: Do you think finance departments are the best place to train future CEOs? Include a discussion of both the pros and cons of hiring a CFO to be CEO. Try to cite at

Using NPV profile to select projects

IS THE BEST ANSWER FOR THIS A or B ?? thanks! Cherry Books is considering two mutually exclusive projects. Project A has an internal rate of return of 18 percent, while Project B has an internal rate of return of 30 percent. The two projects have the same risk, the same cost of capital, and the timing of the cash flows i

Profit, Contribution and Collection

If an airline company has a profit before taxes of $1 million flying at 80% of capacity with revenue of $100 million, fixed cost of $69 million and variable cost of $30 million. What is the before tax profit at 90% capacity? What is the contribution margin in dollars of Airline at revenue of $100 million? If an organizati

Cost of Capital-Capital Budgeting

How does cost of capital financing techniques affect the organization? How do you use capital budgeting and relevant cash flow to compare investment alternatives?

Merits of using the NPV over IRR

Discuss the relative merits of using the NPV over IRR. Why is one favored over the other? Under what circumstances would one use the MIRR? Which is your preferred technique and why? Explain.

Financial analysis of investment alternatives at Pan-Europa

1. Using NPV, I need to conduct a straight financial analysis of the investment alternatives and rank the projects. Which NPV of the three should I use? Why? Help me suggest a way to evaluate the Effluent project. 2. What aspects of the projects might invalidate the rankings derived? How should I correct for each investm

Benford, Inc. is planning to open a new sporting goods store in a suburban mall.

Benford, Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost $200,000 and be depreciated over a 5-year period on a straight-line basis to $0. The new store will require Benford to increase its net working capital b

Comparing Investment Criteria

Comparing Investment Criteria Consider the following two mutually exclusive projects: Year Cash Flow A Cash Flow B 0 -$257,851 -$31,827 1 25,500 11,483 2 57,000 12,954 3 51,000 11,412 4 405,000 9,674 Whichever project you choose, if any, you require a 15 percent return on your investment. Required:

NPV & IRR - Anderson International Limited

NPV and IRR Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 -$ 468,000 1 183,000 2 208,000 3 223,000 4 201,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the

Present Value of Cash Flows and Calculations in Capital Budgeting

1 Prepare a December 31 balance sheet using the following data: The par value of the firm's common stock is $100. Cash $ 4,000 Patents 82,000 Accounts payable 6,000 Accounts receivable 8,000 Taxes payable 2,000 Machinery 34,000 Bonds payable 7,000 Accumulated retained earnings 6,000 Capital surplus 19,000 2 Calcul

Find the NPV for an investment (raw land)

What will be the NPV of an investment if the following takes place? You have undeveloped raw land that you decide to split into 17 parcels, and begin grading the parcels and putting the streets and underground utilities in mid June 2008. The infrastructure improvements are not completed until mid 2009. You borrow $4,470,

Capital Budgeting Decisions - Net Present Value Analysis of Competing Projects

Please see the attached file for complete description of the questions. EXERCISE 12-11 Net Present Value Analysis of Competing Projects (LO2) Wriston Legacies, a retailer of fine estate jewelry, has $300,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are: Pr

Evaluating three projects

A company has a target capital structure with 45 % debt, 5 % preferred stock, and 50% common equity. This company is evaluating 3 projects. Each project has a cost of $1 million. They will all be financed using the target mix of long-term debt, preferred stock, and common equity. The cost of the common equity for each project sh

Comparisons in Investment Criteria

Comparing Investment Criteria. Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$350,000 -$35,000 1 25,000 17,000

NPV versus IRR - Bumble's Bees, Inc.

NPV versus IRR Bumble's Bees, Inc., has identified the following two mutually exclusive project: Year Cash Flow (A) Cash Flow (B) 0 -$37,000 -$37,000 1 19,000

A Collection of Investment Questions

Please see attachment. Thank you! 1. Tom's friend is retiring and has offered to sell Tom his existing newsstand that is located in the local mall. All of the equipment is rented so all the expenses and revenues are in cash. The license to operate the newsstand expires in eight years, so Tom assumes he would operate the b

Required Return, Profitability Index, and NPV

Chapter 7 Practice Problems 16 & 25 16. IRR. Marielle Machinery Works forecasts the following cash flows on a project under consideration. It uses internal rate of return rule to accept or reject projects. Should this project be accepted if the required return is 12 percent? C0 C1 C2 C3 -$10,000 0 +$7,500 + $8,500

Financial Terms


Buena Terra Corporation - Residual Distribution Model

Buena Terra Corporation is reviewing its capital budget for the upcoming year. It has paid a $3.00 dividend per share (DPS) for the past several years, and its share holders expect the dividend to remain constant for the next several years. The company's target capital structure is 60% equity 40% debt it has 1,000,000 hares of