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Capital Budgeting

Multiple Choice - Corporation Problems

12. What will happen to retained earnings when a corporation issues 1,000 shares of $1 par stock for $10 per share? a. It will increase by $1000 b. It will increase by $9000 c. It will decrease by $9000 d. It will remain unchanged 13. Which of the following bonds is likely to be viewed by investors as the most risky? a.


Which of the following is most correct? a. The NPV and IRR rules will always lead to the same decision in choosing between mutually exclusive projects, unless one or both of the projects are "non-normal" in the sense of having only one change of sign in the cash flow stream. b. The Modified Internal Rate of Return (MIRR) com

Calculating IRR with MACRS for Long Branch Farm

After a long drought, the manager of Long Branch Farm is considering the installation of an irrigation system which will cost $100,000. It is estimated that the irrigation system will increase revenues by $20,500 annually, although operating expenses other than depreciation will also increase by $5,000. The system will be deprec

Market Rates and Cost of Capital

Please see attached file for tables. What does a company's cost of capital represent and how is it calculated? How do market rates and the company's perceived market risk impact its cost of capital, and how does the company's debt to equity mix impact this cost of capital? Using the information provided, develop a spreadshee

Sony venturing into China

Prepare a budget and financial overview for your global venture. Prepare a financial analysis in terms of currency risk management and financing of your global operation. Discuss what financial institutions and instruments you would use to achieve your global expansion 1) As a minimum, apply the following capital budgeting

VP of Accounting Meeting with the CFO

You and the VP of Accounting are meeting with the CFO next week to discuss critical areas of the operating budget for next year and the capital budget as well. Of particular concern to the CFO is the company's working capital position, the impact of some short-term notes that the company must pay-off next year, the company's cur

Management Decisions - L&M Power

L&M Power In the next two years, a large municipal gas company must begin constructing new gas storage facilities to accommodate the Federal Energy Regulatory Commission's Order 636 deregulating the gas industry. The vice-president in charge of the new project believes there are two options. One option is an underground deep

Budgeting Problem - MBA Program - Western Run University

Western Run University offers a continuing education program in many cities throughout the state. For the convenience of its faculty, as well as to save costs, the university operates a motor pool. Until March, the motor pool operated with 15 vehicles. However, an additional automobile was acquired in March. The motor pool furni

Two managers within a company are discussing capital budgeting projects.

Two managers within a company are discussing capital budgeting projects. Manager 1 heads up Division A with average projects that are fairly safe and considered low risk. Division A's cost of capital is 10%. Manager 2 heads up Division B with average projects that are considered high risk. Division B's cost of capital is 14%.

Compute using project balances

Project Balance (End of Year) Project i PB(i)0 PB(i)1 PB(i)2 PB9(i)3 PB(i)4 PB(i)5 A 10 -1,000 -1,000 -900 -690 -359 105 B 0 -1,000 -800 -600 -400 -200 0 C 15 -1,000 -650 -348 -100 85 198 D 18 -1,000 -680 -302 -57 233 575 E 20 -1,000 -1200 -1440 -1328 -1194 -1000 F 12.9 -1,000 -530 -9

Capital Projects for Target Corp.

Based on the information below (under supporting information) complete these steps: 1. Select two capital projects for Target. 2. Justify how the projects make sense for Target given its current situation. One of the projects should be a domestic project and one should be an international project. 3. Estimate the revenues a

Capital budgeting decisions

What method do you think is the better one for making capital budgeting decisions---IRR or NPV? detail if possible Some people feel that the IRR can produce misleading results, because it assumes that the cash returned from an investment is reinvested at the same percentage rate, which might not be realistic. What do you see?

Internal rate of return

The expected cash flows are as follows year Cash Flow 0 - $315,000.00 1 + $71,000.00 2 + $150,000.00 3 + $150,000.00 What is the project's internal rate of return and the NPV on the following discount rates? 0% 4% 8% 12% If I hand plotted a chart where the discount rate is on

Capital budgeting

Why is it important to identify the incremental cash flows in the context of calculating the NPV for capital budgeting purposes? Are you ready to put your knowledge to test by working on the following exercise? Which of the following should be treated as incremental cash flows when computing the NPV of an investment? a. A re

Modified Rate of Return

A company's project has expected net cash inflows of $4,000 per year for seven years. The project has a cost of $12,200 and the cost of capital is 17%. What's the project's modified internal rate of return?

ABC Inc. is considering investing in a new machine.

ABC Inc. is considering investing in a new machine. If it purchases the machine, annual cash revenues will increase by $125,000 whereas annual cash expenses will increase by $70,000. The machine costs $85,000 and has a useful life of 5 years. The tax rate is 34% and ABC Inc desires a 20% rate of return. A) Compute the net pres

Mixed Managerial Accounting Problems

Refresher Managerial Accounting Sample Problems - show all your work in detail. 1. Darien Industries operates a cafeteria for its employees. The operation of the cafeteria requires fixed costs of $4,700 per month and variable costs of 40% of sales. Cafeteria sales are currently averaging $12,000 per month. Darien has an oppor

NPV and Internal Rate of Return

There are two cash flows C1 = {-100,30,30,30,30,30} and C2 = {-150,42,42,42,42,42}. r = 0.05 NPV of C1 = 29.88 NPV of C2 = 31.84 IRR of C1 = 15.2% IRR of C2 = 12.4% Which cash-flow do you prefer?Can you thick of scale-free measures of comparison?


Express Company has budgeted sales for the first quarter of next year as follows: January $240,000 February $280,000 March $320,000. Sales are 70% credit and 30% cash. Credit sales are collected 80% in the month following sales and 20% in the second month following the sale. Cost of Goods is 65% of sales. Express Company desire

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

Capital Investment 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

Net Present Value (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