Explore BrainMass

Capital Budgeting

Capital investment evaluation for mutually exclusive project

20.) Miller Electronics is considering two new investments. Project C calls for the purchase of a coolant recovery system. Project H represents an investment in a heat recovery system. The firm wishes to use a net present value profile in comparing the projects. The investment and cash flow patterns are as follows: Project C ($

Multiple choice, please show the work if you can

Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. You are given the following data: r* = real risk-free rate = 4% Constant inflation premium = 7% Maturity risk premium = 1% Default risk premium for AAA bonds = 3% Liquidity premium for long-term T-bonds

Logistics / production & operations management

Subject: Logistics / Production & Operations Management 1 file attached: (1) "Claris -- answers.xls" --- This file includes 3 different worksheets: one worksheet states some numerical facts from the case; another worksheet has my notes on areas of improvement I think Claris should consider; and the other worksheet has a sp

Labor Economics

Congress frequently considers proposals to reduce the rate at which capital gains are taxed (i.e. lowering the costs of capital). Proponents believe that the reduced capital gains tax rate would encourage businesses to expand and hire more workers. Opponents argue that such a tax cut would primarily benefits stockholders. Althou

NPV/IRR/Profitability Index

Consider the data on the following two mutually exclusive projects under consideration by the Stephen Company: Year Project A Project B 0 -30,000 -60,000 1 10,000 20,000 2 10,000 20,000 3 10,000 20,000 4 10,000 20,000 5 10,000 20,000 The cost of capital is 14%.

6 Finance Problems: Calculate WACC, NPV, cash flow, EAA, IRR, abandonment value

Hilliard Corp. wishes to calculate its weighted average cost of capital. The firm's CFO has gathered the following information: ? The firm's long-term bonds currently offer a yield to maturity of 8%. ? The company's stock price is currently at $32 per share. ? The most recent dividend at t= 0 was $2 per share. ? The dividend

Estimating the Cost of Capital

Over the past few years, My Company has been too constrained by the high cost of capital to make amny capital investmens. However, recently, capital costs have been declining, and the company has decided to look at a major expansion program. The information below is provided to estimate the company cost of capital: 1. T

Mutually exclusive Projects

My small business is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below: Year Project X Cash Flow Project Y Cash Flow 0 -$2,000 -$2,000 1 200 2,000 2 600 200 3 800 100 4 1,400 75 The projects are equally risky, and my small business cost of c

Incremental cash flows, depreciation, net present value

Here is the problem: Paul's Pizza is considering the purchase of a new pizza oven. The original cost of the old oven was $30,000.; it is now 5 years old and it has a current market value of $13,333.33. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straigh-line basis, result

6 Problems

1. Assume a project has normal cash flows, that is, the initial cash flow is negative, and all other cash flows are positive. Which of the following statements is most correct? It can be more than one statement: -All else equal, a project's IRR increases as the cost of capital declines -All else equal, a project's NPV increas

Dandy Products, Denver Corp, The Seattle Corp: ROR, cost of capital, NPV, IRR

1. Dandy Product's overall weighted average required rate of return is 10%. Its yogurt division is riskier than average, its fresh produce division has average risk, and its institutional foods division has below-average risk. Dandy adjusts for both divisional and project risk by adding or subtracting 2% points. Thus, the ma

Investment timing option

The Karns Oil company is deciding whether to drill for oil on a tract of land that the company owns. The company estimates that the project would cost $8million today. Karns estimates that once drilled, the oil will generate positive net cash flows of $4million a year at the end of each of the next four years. While the compa

Finance Questions

Explain how the bond-refunding problem is similar to a capital budgeting decision? If common stockholders are the owners of the company, why do they have the last claim on assets and residual claim on income? As an investor which type of security would you prefer to own and why?

Capital Budgeting at X-treme Vitamin Company

X-treme Vitamin Company is considering two investments, both of which cost $10,000. The cash flows are as follows: Year Project A Project B 1 . . . . . . . . . . $12,000 $10,000 2 . . . . . . . . . . 8,000 6,000 3 . . . . . . . . . . 6,000 16,000 a. Which of the two pr

Capital Budgeting

Borden Books is interested in purchasing a computer system to use for the next 10 years. Currently, Borden is considering two mutually exclusive systems, System S and System L. System S has an up-front cost of $3 million at t = 0 and will produce positive cash flows of $2.5 million per year for two years (at t = 1 and 2).

Capital Budgeting

Johnson Jets is considering two mutually exclusive machines. Machine A has an up-front cost of $100,000 (CF0 = -100,000) and produces positive after-tax cash inflows of $40,000 a year at the end of each of the next six years. Machine B has an up-front cost of $50,000(CF0 = -50,000) and produces after-tax cash inflows of $3

Capital Expenditure

I know that the company should accept the project, but what about the time value of money? If you include this into the analysis would you still accept the project or reject it and why?

Finding NPV and IRR for a Project

Consider the following project cash flows: Year ......................Project A...........Project B 0 investment.............-$200..............-$300 1...................................60..................200 2...................................70..................100 3...................................80..............

Basic finance problems

1) Define the following terms: a) Sunk Cost b) Opportunity cost c) Allocated cost 2) Is the following statement true or false. If the statement is true, where or how are these costs reflected? "Financing costs should be ignored when estimating a project's relevant cash flows." 3) List and discuss items included in a p

Discuss NPV decision rule; calculate payback period, IRR, profitability index

1) Your author offers four alternatives to the NPV rule. List and discuss these four alternatives. 2) When two mutually exclusive projects give conflicting acceptance indicators, how should the manager resolve the conflict? 3) Two projects have the expected cash flows shown below. The projects have similar risk characte

Working Capital, Forecasts and Pro Forma Financial Statement

Discuss the importance of having a working capital policy. Discuss why businesses spend time and effort and money to produce forecasts? In addition, discuss how the cash budget and capital budget relate to pro forma financial statement preparation.

Problem Set

# 1. An insurance firm agrees to pay you $3,310 at the end of 20 years if you pay premiums of $100 per year at the end of each year for 20 years. Find the internal rate of return to the nearest whole percentage point. The answer is 11%. my calculations did not get this can you please explain how to solve the problem step b

Why these answers are correct?

The modified IRR (MIRR) method overcomes the problems of cash flow timing and project size that lead to criticism of the regular IRR method A) true B) false (correct) A 10-year corporate bond has an annual coupon payment of 9 percent. The bond is currently selling at par ($1,000). Which of the following statements is most c

Barkley finances, evaluating a project, two cash outflows.

1. Barkley finances only with retained earnings, and it uses the CAPM with a historical beta to determine its cost of equity. The risk-free rate is 7%, and the market risk premium is 5%. Barkley is considering a project that has a cost at t=0 of $2,000 and is expected to provide cash inflows of $1,000 per year for 3 years. Wh

I need some help with these question

(See attached file for full problem description) --- Problem 7-9 NPV and IRR. A project that costs $3,000 to install will provide annual cash flows of $800 for each of the next 6 years. Is this project worth pursuing if the discount rate is 10 percent? Project NPV How high can the discount rate be before y

Basic Capital Budgeting for IBM in 2001: Standard & Poor rating

Problems Ch. 10-4 & 10-6 are attached with powerpoint assistance. Also, the problems below can be answered with financial condition section of the management discussion found in IBM's 2001 Annual Report. The attached financial condition starts with first page paragraph statement "During 2001, the company continued to demonst

Risk Management

Use the following list of risk management tools and describe the circumstances under which they would be applied to the risk categories of corporate (including risk associated with acquisition analysis and capital budgeting), economic, foreign currency, political, and other relevant global business risks. 1. Black-Scholes opt

Comparing Investment Criteria

Consider the following two mutually exclusive projects: whichever project you choose you require a 15% return on your investment. Round answers (a-d) to two decimal places and (e) to three decimal places. Year Cash Flow (A) Cash Flow (B) 0 -$29