Explore BrainMass

Capital Budgeting

Calculate the internal rate of return

Nina Roberts has the opportunity to invest in a timber forest. She would have to invest $100,000. Revenues of $20,000 per year are projected for 20 years. However, these revenues will not begin coming in for five years because the timber must be seasoned before cutting and selling can begin. Ms. Roberts's hurdle rate is 10%. Ig

Capital Budgeting Reliance on Analysis of Cash Flows

1. Why does capital budgeting rely on analysis of cash flows rather than on net income? 2. What is normally used as the discount rate in the net present value method? 3. Have you ever heard of the replacement decision? 4 Does capital budgeting deals with actual dollars?

Microsoft Bonds

Base your answers on information from the most current bond and stock quotations from The Wall Street Journal, a Standard & Poor's Bond Guide,, or another reliable bond information source. ? How is Microsoft's bonds listed? How many bond issues does the company currently have listed on the bond market and wha

Internal Rate of Return and NPV Calculations

(a) A capital investment requiring one initial cash outflow is forecast to operating profits (cash) as follows Year 1 $74,000 Year 2 $84,000 Year 3 $96,000 Year 4 $70,000 The investment has an NPV of $20,850 based on a required rate of return of 12%. Calculate the payback period of the investment. (b) The initi

NPV, Internal Rate of Return (IRR), and Discount Rates

I'm getting ready to start a Finance class. I'm reading ahead in the book to try and prepare myself for the course. I have a 4.0 GPA and really want to maintain it through graduation; however, this finance book seems like it is pretty daunting! I'm trying to understand these concepts and there are a few problems that I would lik

"Caladonia Products" Integrative Problem

"Caladonia Products" Integrative Problem Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows: YEAR PROJECT A PROJECT B 0 -$100,000 -$100,000 1 32,000 0 2 32,000 0 3 32,000

Business - Finance

The acceptance of a capital budgeting project is usually evaluated on its own merits. That is, capital budgeting decisions are treated separately from capital structure decisions. In reality, these decisions may be highly interwoven. This may result in: A. firms rejecting positive NPV, all equity projects because changing to

Present Values

Present Values. Compute the present value with the information provided below. Cash flow $137 a. rate 5% time 13 yrs b. rate 7% time 14 yrs c. rate 9% time 17 yrs d. rate 11% time 20 yrs

Debt-Equity - Budgeting

1. A firm has $ 4 millions in total assets and 2.2 millions in equit. How much of its $500,000 capital budget should be debt-financed to retain the same debt-equity ratio? 2. A firm has an unused machine that originally cost $75,000, has a book value of $20,000 and is currently worth $25,000. Ignoring taxes, the correct oppo

Relevant annual after-tax cash flow

ABC Corp is considering the various benefits that may result from the shortening of its products cycle by changing from the company's present manual system to a computer-aided design / computer-aided manufacturing (CAD/CAM) system. The proposed system can provide productive time equivalence close to the 20,000 hours currently av

Steps to Formulating Operation Budgeting

Nathan's Place, open 365 days, consists of an 100 room motel with a 50 seat restaurant shop. Nathan Harris provides you with the following information: 1. Of the 100 rooms, 80 are doubles and 20 are singles. 2. The doubles are sold for $65 each and the singles are sold for $50 each. 3. Forecasted oc

End of year cash flows

The Walker Landscaping Company can purchase equipment on sale for $3,200. The asset has a two-year life, will produce a cash flow of $800 in the first year, and $3,000 in the second year. The interest rate is 15%. REQUIRED: 1) Assuming end of year cash flows, calculate the project's: a) the project's payback, b) IRR and c) NP

Present value of salary arrangement

You have just joined a regional investment banking firm. They have offered you two different salary arrangements. You can have $81,000 per year for the next 3 years or $60,000 per year for the next 3 years, along with a $50,000 signing bonus today. If the market interest rate is 16%, what is the present value of the best salary

Miscellaneous Finance Questions

1)A state's lottery winner is promised $200,000 a year for twenty years (starting at the end of the first year). How much must the state invest now to guarantee the prize if the state can earn annually 7 percent on its funds? How much must the state invest if the annual payments were made at the beginning of the year? 2)A hom

Present Value

On January 1, 2004, Grant Co. issued ten-year bonds with a face amount of $5,000,000 and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows: 8% 10% Present value of 1 f

NPV, IRR, and Payback

CU Boxes Inc. makes boxes for shoe manufacturers. One of the machines that CU uses may need replacement. The following information is available to you: Revenues will not change if the machine is replaced. Both the present machine and the new machine will last 5 years and will have no disposal value in five years. The new mac

Cost Reallocation

Based on the attached article I need help answering the following questions Describe the process of allocation of costs in this organization. Do you agree with the approach? Why or why not?. Identify those situations when common costs are allocated. Explain the impact of allocating common costs for internal decision m

Finances Multiple Choice Questions & Problems

Multiple Choice Questions: 1. Corporate managers are expected to make corporate decisions that are in the best interest of A) top corporate management. B) the corporation's board of directors. C) the corporation's shareholders. D) all corporate employees. 2. Financial markets are used for trading: A)

Identifying synergistic acquisition candidate

This will be a report to the board of directors that identifies a synergistic acquisition candidate for your company. i. This report should clearly identify the following: 1) Your proposed acquisition terms 2) Price 3) Financing 4) Potential negotiation strategies j. Supporting financial d

Profitability Index/Mutually exclusive investments with unequal lives

PROFITABILITY INDEX: Another project under consideration by Clayton Systems is the upgrading of its data processing operations. To change its operation will require a $1,500,000 investment and the new equipment will have a useful life of five years. The firm currently contracts out almost all of its data processing needs to an

35 Finance Multiple Choice Problems

1. Financial leverage is beneficial only if the firm can employ the borrowed funds to earn a higher rate of return than the interest rate on the borrowed amount. Generally speaking, the higher the financial leverage, the greater the profits at high levels of operating profit. a) true b) false 2. How long must one wait (to t

Present Value

A father wants to buy his daughter a new car on her 18th birthday. His daughter just turned 13, and the father estimates the new car will cost $28,000 at the time of purchase. Rates on 5-year certificates of deposit are currently at 5%, with quarterly compounding. How much does the father need to deposit today to have $28K at

Capital Budgeting IRR

The company is considering investing in a machine costing $100,000. It has a 10 year life span, and no salvage value. Annual maintenance costs are $10,000pa, and labour savings are $25,000pa. Ignore tax effects. a. If all cash flows occur at the end of each year, what rate of return can be expected? b. If all cash flows o

Finance - NPV & IRR

Can you help me get started on this assignment? The chief financial manager of the Picayune Daily is trying to determine of the company should purchase a second printing press to increase circulation due to recent surge in population growth in the area. He works with the sales manager, and is provided to the following project

Centralized and decentralized capital budgeting

1. What is meant by the terms "centralized" and "decentralized" when applied to capital budgeting? Why might centralized and decentralized analyses of the same project lead to different net present values? What might lead companies in one country to have a lower cost of capital than similar companies in another?

Cash Flow - Marketing Study

A company has recently completed a $5,000,000 two-year marketing study. Based on the results of this study, the company has estimated that 500 units of its new hardware could be sold annually over the next 12 years, at a price of $100,000 each for the first 6 years. The sales price is expected to drop to $75,000 in years 7-12.