# Capital Budgeting

### 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

### The director of capital budgeting for Giants Inc. has identified two mutually exclusive projects...

The director of capital budgeting for Giants Inc. has identified two mutually exclusive projects, L and S, with the following expected net cash flows: Expected Net Cash Flows Year Project L Project S 0 ($100) ($100) 1 10 70 2 60 50

### 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

### Evaluating three (3) Projects Using Different Capital Budgeting Tools

Problem A: Try evaluating the following projects with all of the basic capital budgeting tools, in other words, which project would you pick as the best: Projected Cash Flow Years 0 1 2 3 4 5 Project A (500) 45 55 65 175 185 Project B (250

### Determining payback period, discounted payback period, etc

Determine the payback period, discounted payback period, NPV, profitability index, IRR from sample #1 attached Use the following data to for 1,2,3 4,5 below: Undiscounted Year Free cash flows 0 (350,000) 1 10,000 2 40,000 3 80,000 4 100,000 5 120,000 6 80,000 7 100,000 Required rate of return = 8% 1. The payback p

### Create an example of a budget and an example of a forecast using imaginary numbers from your start-up business...

Assume you are starting a new business. Write a half page explanation of the difference between budgeting and forecasting and the purpose of each. Create an example of a budget and an example of a forecast using imaginary numbers from your start-up business. Your budget and your forecast should contain income(sales of product

### What are earnings if the owners put up the $100? Firm's weighted-average cost of capital at various combination of debt and equity. What is the firm's optimal capital structure? If the net present value method is used, which investment(s) should the firm make? Construct a pro forma balance sheet that indicates the firm's optimal capital structure.

Firms' weight average cost of capital and other questions: 1. A firm needs $100 to start and expects: Sales $200 Expenses $185 Tax rate 33% of earnings a. What are earnings if the owners put up the $100? b. If the firm borrows $40 of the initial at 10%, what are the profits rece

### Discussion analysis

Need to discuss my findings for the following problems. Discussion should be 1 paragraph long for both questions. (See Attachments) --- 1. Edelman Engineering is considering including two pieces of equipment, ________________________________________ Edelman Engineering is considering including two pieces of equipment, a t

### Time-phased budget for implementing software. Identify the primary cost drivers

Practice problem- no grade Revise Excel Spreadsheet (attached) to a time-phased budget for implementing software. Identify the primary cost drivers. Do not need to worry about depreciation of the software. Need to focus on understanding what the costs are, and when those costs will be incurred during the implementation pr

### Capital Budgeting: The payback period, NPV and Profitability Index

A company is considering replacing a five-year old machine that originally cost $50,000, presently has a book value of $25,000 and could be sold for $60,000. This machine is currently being depreciated using the simplified straight line method down to a terminal value of zero over the next five years, generating depreciation of

### Suppose you are the chairperson of the Fed's Board of Governors...

Suppose you are the chairperson of the Fed's Board of Governors at a time when the economy is depressed, and you are called to testify before a congressional committee. Write an explanation for an interrogatory senator outlining how your expansionary acts would operate and what would be the effects on the economy?

### Capital Budgeting

5 questions on NPV, IRR, Cost of Capital, Financial planning (See attached file for full problem description) --- 1. Banner Forklift, Inc. has identified the following two mutually exclusive projects: (a) Apply NPV and IRR to decide which of these two projects you would accept. The required return on the project is 1

### Cash Equation, Cash Collections, Capital Structure...

1. Cash Equation. Stabbing Westward Company has a book net worth of $21,000. Long-term debt is $5,000. Net working capital, other than cash, is $8,500. Fixed assets are $8,000. How much cash does the company have? If current liabilities are $4,000, what are current assets? 2. Calculating Cash Collections. The following i

### Internal Rate of Return

Katie, wants to know if her investments during the past four years have earned at least a 12% return. Four years ago she had the following investments. a)She purchased a small building for $50,000 and rented the space in it. She received rental income of $8,000 for each of the four years and then sold the building this year f

### ROI

What ROI would you expect on a new strategic program or service?

### Critical Data Sources

In evaluating the implementation of a new strategic initiative in an organization, what would be the critical data sources you would utilize to predict financial performance?