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Capital Budgeting

Payback method for capital budgeting decisions

3. Suppose a firm relies exclusively on the payback method when making capital budgeting decisions and it sets a 4-year payback regardless of economic conditions. Other things held constant, which of the following statements is most likely to be true? a. It will accept too many short-term projects and reject too many long-ter

Using capital budgeting techniques to evaluate the replacement

BPA Corporation is considering the purchase of a new electronic painting equipment to replace the existing equipment that has a book value of 3,000 and can be sold for 1,500. The old equipment is being depreciated on a straight line basis and its estimated salvage value 3 years from now is zero. The new equipment will reduce cos

Calculate the payback period, IRR and NPV values for the given case.

Corn Doggy, Inc. produces and sells corn dogs. The corn dogs are dipped by hand. Austin Beagle, production manager, is considering purchasing a machine that will make the corn dogs. Austin has shopped for machines and found that the machine he wants will cost $262,000. In addition, Austin estimates that the new machine will inc

Healthcare budget

The scenario is in an acute care hospital setting: - What is an operating budget? - What is a capital budget? - Why is a capital budget developed separately from the operating budget? - What is the definition of a capital budget item in a organization? - An example of a possible capital request in an organization? Refere

Present Value: Millionaire

1. Suppose an 18-year-old Soldier wishes to retire from the Army as a millionaire. She intends to contribute $10,000 to the Thrift Saving Plan (TSP) at the end of each year until she retires with $1,000,000 in that account. Would she meet her retirement goal if the Army retains her until she is at 60 years of age, assuming the

Decisions without using net present value analysis for in-house services

SKF Primary Care Clinic is deciding whether to purchase MRI equipment that would enable it to perform MRI imaging services in-house rather than sending its patients to its competitor's hospital three miles away. From a financial position, if SKF were to make its decision without using net present value analysis, the clinic would

Making Decisions Under Uncertainty

I need help with the following questions. To save on gasoline expenses, Edith and Mathew agreed to carpool together for traveling to and from work. Edith preferred to travel on I-20 highway as it was usually the fastest, taking 25 minutes in the absence of traffic delays. Mathew pointed out that traffic jams on the highway can l

Creating and Solving a Capital Budgeting Problem

This question required that a capital budgeting question to be created and a solution provided for it. The question involved a long-term project that a company is considering investing in. The solution uses two capital budgeting methods, the Payback period method and the Net Present Value method, to come to a decision about wh

Assessing Present Value

Suppose the following two proposals were being considered. Find the Present Value of the proposed project. Select the project you would choose. Explain what other considerations you think are important when choosing one project over another. Suppose the first project expects to receive $25,000 in 110 days, and the opportunity

Budgeting and Financing Problems

About Darren Darren is 45-year old Caucasian male who is currently in career counseling due to a host of issues that has eventually led to his unemployment for the past year. He is a well-educated man that he has lived in cities all his life, growing up in Chicago and moving to New York and Houston for university and graduat

IRR and Cash Multiples

Explain the use of IRR and cash multiples as alternative valuation metrics, and discuss the drawbacks of those methods. In your answer, include how sensitivity analysis affects the evaluation process. Give examples.

Capital Budgeting and Depreciation Methods

Please help with these questions. What are the important differences in the way operating risk (versus financial risk) enters into the consideration of a capital budgeting project?" Phyllis believes that the firm should use straight-line depreciation for a capital project, because it results in higher net income during the

Profit Variance Questions

1. Consider the following 2007 data for Newark General Hospital (in millions of dollars): Static Budget | Revenue Budget | Actual Results Revenues | $4.7 | $4.8 | $4.5 Costs | $4.1 |

Cost of Capital, Asset Betas, Capital Budgeting, Leverage

Problem 9-2: A company is 40% financed by risk-free debt. The interest rate is 10%, the expected market risk premium is 8%, and the beta of the company's common stock is .5. Risk Free Debt Interest Rate Market Risk Premium Beta Taxes 40% 10% 8% 0.5 35% a.      What is the company cost of capital?

Calculate the WACC, NPV, IRR and PV of depreciation tax shields.

A1. (Calculating the WACC) The following values apply to the Drop Corporation: rd = 7.5%, re = 13%, T = 38%, D = $100, and E = $200. What is the weighted average cost of capital? A2. (Mutually exclusive projects) Consider the cash flows given below for the mutually exclusive projects, S and L. a. If the cost of capital is 10

Net present value qualitative issues

ABC Company is a company that employs only people with physical or mental disabilities. One of the organization's activities is to make cookies for its snack food store. Several years ago, ABC Company purchased a special cookie-cutting machine. As of December 31, 2010, this machine will have been used for three years. Manage

Net Present Value: Park City

A Park City corporation has cash flows as follows. What is the NPV? Year 0 - ($1,000) r = 10% Year 1 - $500 Year 2 - $400 Year 3 - $300 Year 4 - $100 a. 78.82 b. 85.16 c. 133.04 d. $168.45 e. Answer not listed

Corporate Finance Problems on NPV and IRR

1) Under what conditions does r, a stock's market capitalization rate, equal its earnings price ratio EPS1/P0? 2) What is meant by the "horizon value" of a business? How can it be estimated? 3) Respond to the following comments:

Determining the Net Present Value

Marcus Carroll has decided to start a small delivery business to help support himself while attending school. Mr. Carroll expects demand for delivery services to grow steadily as customers discover their availability. Annual cash outflows are expected to increase only slightly because many of the business operating costs are fi

Financial & Economic Guidance

I've got the following questions that I would like your opinion/guidance on. Any guidance is appreciated. 1.) Many firms use the weighted average cost of capital for the firm as the hurdle rate when comparing to IRR or as the discount rate in an NPV calculation. However, there is an implicit assumption being made when one do

Shao Airlines : Compare the two projects with two unequal lives.

Shao Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million and will produce net cash flows of $32 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $26 million per year. Shao plans to serve the route for only 10 ye

Hypothetical Shopko Stores Capital Budgeting Decision

Payback, Net present value, Cash Flow spreadsheet, and internal rate of return methods Shopko Stores, Inc. is struggling to find its niche in today's competitive retail merchandising market. Head to head competition with Wal-Mart, Target, Kohl's and Kmart in shared markets have led to a decline in profit margin in these markets.

Comparing capital budgeting techniques

Explain the capital budgeting techniques of NP, PI, IRR, and Payback. Describe the pros and cons of each, and how they are utilized to make capital budgeting decisions.

Capital Budgeting: Crunching the Numbers

I would appreciate assistance with the attached problem (Miskell, p. 328, problem #6). I need assistance with completing the problem in Excel. Please show and explain formulas in Excel to help me get a better understanding to complete questions asked. Reference: Mikesell, J. L. (2010). Fiscal administration: Analysis and

Number crunch analysis

See the attached file. 1. Use Excel, or another suitable program, to calculate each of the following; show your work: - Payback Period for Option A - Internal Rate of Return for Option A - Net Present Value for Option A - Payback Period for Option B - Internal Rate of Return for Option B - Net Present Value for Op

Analysis of Investment Performances

** Please see the attached file for the complete problem description ** As a private investor, you have collected the following data over the past five years for your analysis of investment performance. (Please see the attached file for the data) a) Calculate the arithmetic mean and geometric mean for Fund (UK Active) f

Real estate finance questions

1 A landlord can shift risk to tenants through the use of: (A) tax stops (B) escalator clauses (C) net leases (D) all of the above 2 In real estate investment analysis, capitalization rates: (A) are a measure of the relationship between a property's market value and net operating income (B

Free Cash Flows, Net Present Value, Rate of Return and Sensitivity

A company wants to invest 40,000,000 in equipment. The investment is projected to generate 23,000,000 the first year, 26,000,000 the second year and 30,000,000 the 3rd year. After the first 3 years, sales are projected to increase 10%/yr for the remaining 2 years. The equipment will be disposed of after year 5 and has a re