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Capital Budgeting

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

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

Operation Budgeting Problem

Q. 1. Forecast the amount of room sales for June 2001. Doubles Singles Total Forecasting Sales. See attached file for full problem description.

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