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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

Ratios Most Helpful in Managing a Firm's Capital Structure

Which two ratios would be most helpful in a managing a firm's capital structure? A) leverage ratios and coverage ratios B) Coverage ratios and profitability ratios C) Coverage ratios and liquidity ratios D) Balance sheet leverage ratios and profitability ratios

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

Time Value of Money - Yield with Interpolation

Have no idea how to start this problem. Step by step instruction will be great. Ester Seals has just given an insurance company $41,625. In return, she will receive an annuity of $5,000 for 15 years. At what rate of return must the insurance company invest this $41,625 to make the annual payments? Interpolate.

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%.

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


Superior Manufacturing is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 55% of sales. Indirect incremental costs are estimated at $80,000 a year. The project requires a new

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?

Present Value/IRR

The Zero Machine Company is evaluating a capital expenditure proposal that requires an initial investment of $20,960 and has predicted cash inflows of $5,000 per year for 10 years. It will have no salvage value. Required: a. Using a required rate of return of 16%, determine the net present value of the investment proposa

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

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