Share
Explore BrainMass

Capital Budgeting

Modified Internal Rate of Return

The 21st century corporation uses the modified internal rate of return. The firm has a cost of capital of 8 percent. The project being analyzed is as follows ($20,000 investment): Year Cash Flow 1 $10,000 2 $9,000 3 $6,800 a. What is the modified internal rate of return? b. Assume the tradition

Options for Capital Budget and Residual Dividend Policy

Capital budget $10,000,000 Desired capital structure 40% Debt 60% Equity Expected net income $7,000,000 Outstanding shares 5,000,000 Last annual dividend per share $0.50 1) What are the company's options for raising the money needed for the capital budget? 2) Should the company follow the resi

Analyze a project with cash flow, break even, NPV

Case Study Analysis: Too Hot To Handle! Capital Budgeting a. Briefly summarize the case b. Formulate answers to questions 1, 2, 3, 4, 5, 6, and 7 at the conclusion of the case. Be sure to include your calculations where appropriate. Capital Budgeting Too Hot To Handle! When Patsy opened her full service salon

Organization's hurdle rate determined

How is an organization's hurdle rate determined? What is the relationship between the hurdle rate and capital budgeting decision making? Are there any circumstances in which it makes sense to accept a capital budgeting project that does not meet the hurdle rate? Explain your answer.

Question about Cost of Capital

SkyHigh Airlines has five possible investment projects for the coming year. Each project is indivisible. They are: Project A: $5 million investment / IRR: 22% Project B: $12 million investment / IRR: 16% Project C: $6 million investment / IRR: 18% Project D: $2 million investment / IRR: 14% Project E: $3 million investment

Question about Cost of Capital

Clanton Company is financed 40 percent by equity and 60 percent by debt. If the firm expects to earn $20 million in net income next year and retain 40% of it, how large can the capital budget be before common stock must be sold? a) $8.0 million b) $12.0 million c) $20.0 million d) $50.0 million e) $2.0 millio

Net present value; Rate of return principle; Equilibrium market

A firm has the opportunity to invest in a project that is expected to pay an end-of-year annual return of $1 million for each of the next thirty ears after taxes and expenses. The current cost of the project would be $6 million. Assuming a discount rate of 15%, as the required rate of return and (opportunity) cost of capital (i.

Financial Management Project Calculations

See attached file(s) for complete details Work Sheet # Questions 1) 1 thru 4 Simple NPV and IRR calculations 2) 5 thru 8 Apply NPV to Pro Forma Statements Using Pro forma, calculate debt service capabilities 3) 9 thru 13 Entity valuation using different return on capital requiremen

Corporate Finance - Effect of inflation on NPV and Working Capital

Why is it true, in general, that a failure to adjust expected cash flows for expected inflation biases the calculated NPV downward? Explain how net operating working capital is recovered at the end of a project's life, and why it is included in a capital budget analysis. Define (a) simulation analysis, (b) scenario analy

Letter explaining whether company should acquire computer system: NPV, IRR

See the attached file. You have been asked to help a local company evaluate a major capital expenditure. The company is a new internet company and must buy a large computer system which will generate additional revenue. The company provides you with the following information: (Table includes all the necessary information i

Relationship of NPV, IRR, MIRR and WACC

If a project has an up-front cost of $100,000. The project WACC is 12% and NPV is $10,000. which of the following statement is most correct? A. the project should be rejected since its return is less than the WACC B. The project's IRR is greater than 12% C. The project MIRR is less than 12% D. all the above answers ar

Capital Budgeting for the Bingo Corporation

The Bingo Corporation is in the process of determining which of the following two projects that they may invest in. The details are provided in the attachment. a. What is the payback period? b. What is the net present value of the two projects? c. What is the Internal rate of return of the two projects? d. What

2 MC Finance Questions: Compute WACC; normal cash flows

1. A project has an up-front cost of $100,000. The project's WACC is 12 percent and its net present value iss $10,000. Which of the following statements is most correct? a. The project should be rejected since its return is less than the WACC. b. The project's internal rate of return is greater than 12 perc

Dell Computer: Determine free cash flow, IRR, NPV of a project

Determine the cash flows associated with this project. The operating costs and net working capital requirements are similar to the rest of the company and that depreciation is straightline for capital budgeting purposes. Dell Computer is considering adding a new product line and needs to determine the net cash flows and NPV

4 Finance problems

IN CLASS PROBLEMS: Class let's see if we can also apply the concepts in Chapter 12 to the following problems. . 1) The capital budgeting director of Analytical Systems Inc. (ASI) is evaluating a new project that would decrease operating costs by $30,000 per year without affecting revenues. The project's cost is $50,000. The

The capital budgeting director of Sparrow Corporation is evaluating a project which costs $200,000, is expected to last for 10 years and produce net after-tax cash flows of $44,503 per year. If the firm's cost of capital is 14 percent, what is the project's IRR? (Hint: Is the firm's cost of capital relevant to an IRR calculation?)

The capital budgeting director of Sparrow Corporation is evaluating a project which costs $200,000, is expected to last for 10 years and produce net after-tax cash flows of $44,503 per year. If the firm's cost of capital is 14 percent, what is the project's IRR? (Hint: Is the firm's cost of capital relevant to an IRR calculat

Payback, Internal Rate of Return and Purchase Price

Automation of the shipping department at Computer Mart would save labor costs. Details about the automation equipment are as follows: Purchase price of automation equipment $1,200,000 Net annual cash savings provided by the new equipment $200,000 Estimated service life

Internal Rate of Return versus NPV (net present value)

John is considering two capital expenditure projects; however, he has only enough money to do one project. The cash flows follow and the discount rate is 12%. Project A Project B Initial cost $(50,000) $(100,000) Year 1 30,000

Calculating Accounting Rate of Return

A machine was purchased for $10,000. The net income from the machine is as follows: Year 1 $3,000 Year 2 2,000 Year 3 1,000 A. Calculate the accounting rate of return. B. What are the drawbacks to using the accounting rate of return as a method of selecting projects?

Cash Flows, terminal cash flow, cash diagram, NPV, IRR

It's been two months since you took a position as an assistant financial analyst at Caledonia Products. Although your boss has been pleased with your work, he is still a bit hesitant about unleashing you without supervision. Your next assignment involves both the calculation of the cash flows associated with a new investment und

Good Foods, Inc: Calculate payback period, NPV, IRR, PI, MIRR

USE THE FOLLOWING DATA FOR THE NEXT EIGHT PROBLEMS: . The director of capital budgeting for Good Foods, Inc. has identified two mutually exclusive projects, L and S, with the following expected net cash flows: . ..............................Expected Net Cash Flows Year....................Project L..................Project

Flotation Cost and Retained Earnings

1.) Twister Corporation is expected to pay a dividend of $7 per share one year from now on its common stock, which has a current market price of $143. Twister's dividends are expected to grow at 13%. a) Calculate the cost of the company's retained earnings. Answer: 17.90% b) If the flotation cost per share of ne