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Capital Budgeting

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

Net Present Value & Rate of Return for a winning Powerball lottery ticket

Please see attached file for further detail. Question 2 - Net Present Value You have just paid $20 million in the secondary market for the winning Powerball lottery ticket. The prize is $2 million at the end of each year for the next 25 years. If your required rate of return is 8 percent, what is the net present value (N

NPV and IRR , Financial management

Determine the NPV and the IRR from the information provided below, cost 82,500 Life 5 years cost of capital (k) 6.00% salvage value $ 10,000 Cash inflows: 1. 12,000 2. 32,000 3. 32,0

Capital Budgeting: NPV calculations

Most firms generate cash inflows every day, not just once at the end of the year. In capital budgeting, 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.

Sunk Costs for Capital Budgeting

Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and externalities should be included. Give an example of each.

Moerdyk & Co. - Value foregone

Moerdyk & Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under certain conditions choosing projects on the basis of th

IRR/NPV Question

The Crescent Company is considering the purchase of a new machine costing $200,000. This machine is estimated to cost $5,000 per year in operating expenses but it will allow the company to earn an additional $100,000 per year in revenues. However, on average, only 75% of sales are collected in the year of the sale, the remaining

Present Value

Suppose your bank account will be worth $7,000 in one year. The interest rate (discount rate) that the bank pays is 8%. What is the present value of your bank account today? What would the present value of the account be if the discount rate is only 3%?

Compute the internal rate of return for an investment proposal

The following data pertains to an investment proposal: Required investment $400,000 Annual cost savings $105,700 Projected life of investment 6 years Projected salvage value $0 Required rate of return 12% Ignoring income taxes, the internal rate of return on this investment is closest to:

Planning Corporate Investment Activities Discussion Question

I have to answer these questions below in 400 words. I have been reading the chapter and don't fully understand these questions: Discuss the various methods used for project evaluation and the advantages and disadvantages of each? Discuss the various aspects that must be considered when calculating cash flow when making

Managerial Finance

1) Which one of the following is correct? a. A major disadvantage of a partnership or a corporation as a form of business is the fact that they do not offer their owners limited liability, whereas proprietorships do. b. There are more partnerships and sole proprietorships than corporations in the US, and unincorpora

Present Value Factor Calculation

Present value P4-10 Present value calculation Without referring to the preprogrammed function on your financial calculator or tables, use the basic formula for present value, along with the given opportunity coast, I, and the number of periods, n, to calculate the present value interest factor in each of the cases shown i

Capital Budgeting

1.Uneven Cash Flows: Find the NPV (Net Present Value) of a project that requires an investment of $400 now; and another expense of $500 at the end of the 1st year. It gives cash inflows of $300 at the end of year 3, $400 at the end of year 4, and $800 at the end of year 5. The required rate of return is 11%. Is the project acce

Cost of Capital/Capital Structure/Dividend Policy

COST OF CAPITAL The Marietta Corporation, a large manufacturer of mufflers, tailpipes, and shock absorbers, is currently carrying out its financial planning for next year. In about two weeks, at the next meeting of the firm's board of directors, Frank Bosworth, vice president of finance, is scheduled to present his recommenda

Capital Structure Concepts

Using the information provided, answer the following questions. (Disregard depreciation in this case.) The Marietta Corporation, a large manufacturer of mufflers, tailpipes, and shock absorbers, is currently carrying out its financial planning for next year. In about two weeks, at the next meeting of the firm's board of direc

Calculate Payback Period and NPV. Neil Corporation

NEIL CORPORATION HAS 3 PROJECTS UNDER CONSIDERATION. THE CASH FLOWS FOR EA ITEM IS SHOWN. THE FIRM HAS 16% COST OF CAPITAL. All projects has a initial investment of $40,000. CASH FLOWS Project A PROJECT B PROJECT C 1ST YEAR $13,000 $7,000 $19,000 2ND " " $13,000

10.2, 10.5, 10.24, 10.28 The Fundamentals of Capital Budgeting: NPV, Payback

10.2 Net present value: Kingston, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $814,322, $863,275, $937,250, $1,017,112, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this i

Equipment Purchase and Capital Budget

Dr. David Dunn, head of the radiology department at Grant Clinic Inc., is adding a new piece of diagnostic equipment to the department. Two similar models are offered by two different vendors, and both models would serve the needs of the clinic. Both also have an estimated useful life of five years, with no salvage value at the

Using the second case study in the attachment I have a few questions: Using the base case estimates calculate the cash, accounting, and financial breakeven of teh Lazy Mower Project. Interpret each one. Let's say the company had spent $500,000 in developing the prototype of the Lazy Mower. How should Dan and Ron treat this item in their report? Explain. Calculate the IRR of the project. Based on your calculations what would you recommend and why?

Using the second case study in the attachment I have a few questions: Using the base case estimates calculate the cash, accounting, and financial breakeven of teh Lazy Mower Project. Interpret each one. Let's say the company had spent $500,000 in developing the prototype of the Lazy Mower. How should Dan and Ron treat

Finance

Kosch Inc. is considering the purchase of a new machine which is expected to increase sales by $10,000 in addition to increasing non-depreciation expenses by $3,000 annually. Due to the sales increase, Delta expects its working capital to increase $1,000 during the life of the project. Delta will depreciate the machine using the

Salt at Pear Computer Services: NPV, IRR and Project Evaluation

I need help with the following questions based on the details given in the attached file: 1. Salt has requested that all quantifiable data, upon which he will base his choice of project, be compiled and presented to him. The data needed are shown in the following table. Complete the missing entries for project C. 2. Com

Calculating IRR for the given projects

Calculate the internal rate of return on the following projects: Initial outlay of $50,000 with an after-tax cash flow of $10,000 per year for eight years Initial outlay of $600,000 with an after-tax cash flow of $120,000 per year for ten years Initial outlay of $25,000 with an after-tax cash flow $11,500 per year for

Inflation, Budget Constraint, Unemployment Rate

Use the concepts of gross and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. "In 1933 net private domestic investment was minus $6 billion. This means that in that particular year the economy produced no capital goods at all." Do you agree? Why o

Cash flow for Auto Parts Distribution, Inc

In order to expand its business, Auto Parts Distributing, Inc., is considering the purchase of 10 pickup trucks at a total cost of $150,000. The company expects to keep these trucks for four years, then sell them. The company expects these trucks to generate a pretax net cash flow of $75,000 in year 1, $70,000 in year 2, $65,0

Bonds that pay interest forever

A bond that pays interest forever and has no maturity is a perpetual bond. In what respect is a perpetual bond similar to a no-growth common stock? Are there preferred stocks that are evaluated similarly to perpetual bonds and other preferred stocks that are more like bonds with finite lives? Explain.