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# Capital Budgeting

### Calculate payback period and NPV of 3 projects

The cash flow for projects A, B, C are given below: Year ProjectA ProjectB ProjectC 0 -1000 -1000 -1000 1 0 1000 0 2 2000 0 0 3 -1000 1000 3000 (a) Calculate the payback period and net present value for each project (assuming a 10% discount rate). (b) If A and B are mutually exclusive and C is independent, which projec

### Payback period, IRR, and NPV

Yu-Ham has three investments proposal (not mutually exclusive). His company uses 13% annual rate to discount cash flow for NPV. Calculate payback period for each investment; Calculate IRR for each investment and calculate NPV for each investment. Which investment should Yu-Ham take, why? (negative values in time zero). Be

### Strategic management process: how are projects linked to the strategic plan?

Please see attachments. 1) Describe the major components of the strategic management process and explain the role projects play in the process. How are projects linked to the strategic plan? Optional 2) Why is it important to assess the culture of an organization before deciding what project management structure sho

### Payback Period, Sensitivity Analysis

Why is the payback period not a preferred method in the capital budgeting decision-making process? Which decision-making criteria is the best to use for capital budgeting decisions? Why? What is a sensitivity analysis? How is it determined? How can risk be addressed in the capital budgeting process? What is an example of a

### Capital Expenditure - Monarch Corporation: Payback, IRR, NPV MONARCH CORPORATION IS GOING TO START A NEW PRODUCT LINE OF PRODUCTS IN A WHOLE NEW MARKET.

Please see the attached file with 5 Problems on 1 spreadsheet for 1 company. Please solve and include instructions on how to solve. Required: A. Compute below the payback, IRR, and NPV. For NPV use the cost of capital as the discount rate. For part A assume the revenue is \$200,000. B. Copy the worksheet and solutions

### Internal rate of return (IRR) for Marielle Machinery Works

Marielle Machinery Works forecasts the following cash flows on a project under consideration. It uses the internal rate of return rule to accept or reject projects. Should this project be accepted if the required return is 12 percent? C0 C1 C2 C3 -\$10,000 0 +\$7,500 +\$8,500

### IRR, NPV, MIRR for Edelman Engineering

10-3 Edelman Engineering is considering including two piece of equipment, a truck and an overhead pulley system, in this year's budget. The projects are independent. The cash outlay for the truck is \$17,100 and that for the pulley system is \$22,430. The firm's cost of capital is 14%. After-tax cash flows including depreciat

### International Capital Budgeting, Dell Computers

Suppose Dell Computers (of the US) is considering establishing a new production facility in Taiwan. Calculate the APV of this investment given the following information and indicate if Dell should undertake this investment.

See Attachment.

### Principles of Finance: investment, cash flows, NPV, IRR

4. A firm is considering an investment project that will generate the following operating cash flows over the next three years: Year 1 Year 2 Year 3 \$3,000 \$4,000 \$5,000 If the initial investment required to undertake this project is \$9,500 and the firm's cost of capital 10%, what is the NPV

### Capital Budgeting: NPV, Payback, IRR, Cash Conversion Cycle, Working Capital

See Attachment. NPV Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. A project's NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the WACC.

### NPV of investment of \$65,000; cost of capital 10%; return \$16,000 for 8 years

The initial cost of an investment is \$65,000 and the cost of capital is 10%. The return is \$16,000 per year for 8 years. What is the net present value? Textbook info: Operations Management, 8th Edition Authors: Jay Heizer and Barry Render Prentice-Hall

### Sunk costs and timing options: Q12-4 Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and externalities should be included. Q13-2 What factors should a company consider when it decides whether to invest in a project today or to wait until more information becomes available? Q13-3 In general, do timing options make it more or less likely that a project will be accepted today? Explain.

Q12-4 Explain why sunk costs should not be included in a capital budgeting analysis, but opportunity costs and externalities should be included. Q13-2 What factors should a company consider when it decides whether to invest in a project today or to wait until more information becomes available? Q13-3 In general, do timi

### Concepts of Present Value and Application

Part II: Concepts of present value and application to certainty cash flow Note: It is recommended that you use a spreadsheet such as Excel in order to solve the following problems. 1. Suppose you have two bank accounts, one called Account A and another Account B. Account A will be worth \$5,700.00 in one year. Account B

### Determine the yield on an investment using interpolation

On January 1, 2005, Mr. Horsely bought 100 shares of stock at \$12 per share. On December 31, 2008, he sold the stock for \$18 per share. What is his annual rate of return? Interpolate to find the answer.

### Present Value Analysis and EFF%

Suppose someone offered to sell you a note calling for the payment of \$1,000 fifteen months from today. They offer to sell it to you for \$850.00. You have \$850.00 in a bank time deposit that pays a 6.76649% nominal rate with daily compounding , which is a 7% effective annual interest rate, and you plan to leave the money in th

### Capital Budgets calculations for Benford, Inc.: NPV, IRR, profitability index

Benford, Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease the needed space in the mall. Equipment and fixtures for the store will cost \$200,000 and be depreciated over a 5-year period on a straight-line basis to \$0. The new store will require Benford to increase its net working capita

### Capital Budgets: NPV of hiring a monkey in place of a junior executive

A junior executive is fed up with his boss's operating policies. Before leaving the office of his angered superior, the young man suggests that a well-trained monkey could handle the trivia assigned to him. Pausing a moment to consider the import of this closing statement, the boss is seized by the thought that this must have

### Capital Budget projects for Wang Food Markets, Inc.

Note the following information on the annual cash flows of two mutually exclusive projects under consideration by Wang Food Markets, Inc. Year A B 0 \$-30,000 \$-60,000 1 10,000 20,000 2 10,000 20,000 3 10,000 20,000 4 10,000 20,00

### Financial Ratios and WACC for ABC Company

1. Refer to the financial statements to answer the following questions. How profitable was ABC Company when comparing their Gross Margin to total sales? (Answer as a percentage) How profitable was ABC Company when comparing their Net Income to total sales? (Answer as a percentage) What was ABC Company's Earnings Per

### What is the internal rate of return?

A project has an initial requirement of \$1.2 million for fixed assets and \$135,000 for net working capital. The fixed assets will be depreciated to a zero book value over the 6-year life of the project and have an estimated salvage value of \$320,000. All of the net working capital will be recouped at the end of the project. The

### Capital Budgeting: Net present value(NPV), internal rate of return (IRR), payback period, accounting rate of return

The owner of a motor company is considering the addition of a paint and body shop to his auto dealership. Construction of a building and the purchase of necessary equipment is estimated to cost \$1,000,000 and both the building and equipment will be depreciated over 10 years using the straight-line method. The building and equi

### Finance Study Guide: Multiple choice / short answer questions

See the attached file for proper formatting. ____________________________________________________ 1. Which of the following statements about interest rate and reinvestment rate risk is correct? Variable, or floating rate, securities have a high degree of interest rate (price) risk. Price risk occurs bec

### Capital Budgeting: A Project's Net Present Value

Part 1 a. Consider the project with the following expected cash flows: Year Cash Flow 0 - \$550,000 1 \$90,000 2 \$100,000 3 \$450,000 - If the discount rate is 0%, what is the project's net present value? - If the discount rate is 4%,

### Business Analysis: 56 questions

1. Time value of money is based on the belief that a dollar that will be received at some future date has the exact same purchasing power as a dollar has today. ___ True ___ False 2. The future value of \$100 received today and deposited in an account for four years paying semiannual interest of 6 percent is: ___ \$450

### 14-10 Buena Terra Corporation is reviewing its capital budget for the upcoming year. It has paid a \$3.00 dividend per share (DPS) for the past several years, and its shareholders expect the dividend to remain constant for the next several years. The company's target capital structure is 60 percent equity and 40 percent debt. It has 1,000,000 shares of common equity outstanding, and its net income is \$8 million. The company forecasts that it will require \$10 million to fund all of its profitable (i.e., positive NPV) projects for the upcoming year.

14-10 Buena Terra Corporation is reviewing its capital budget for the upcoming year. It has paid a \$3.00 dividend per share (DPS) for the past several years, and its shareholders expect the dividend to remain constant for the next several years. The company's target capital structure is 60 percent equity and 40 percen

### Compare Two Investment Projects Using IRR and NPV

Two mutually exclusive investment projects have the following forecasted cashflows: Year A B 0 -20000 -20000 1 10000 0 2 10000 0 3 10000 0 4 10000 60000 A Compare the internal rate of return f

### Business Finance Questions (3)

Please help with the following 3 business finance questions. Thanks Textbook Fundamentals of Financial Management (Custom) Author: Brigham. Publisher: Thomson South-Western Publishers, 2006, ISBN #0-324-34705-0 1. Project Selection - Midwest Water Works estimates that its WACC is 10.5 percent. The Company is considering t

### Internal Rate of return and NPV

Question- 1 ABC Steel Co. is considering to invest in a heavy-duty machine. Details for the machine are as follows: Initial Investment: \$100,000 Cash Inflows for 5 years: Year 1 \$40,000 Year 2 \$30,000 Year 3 \$20,000 Year 4 \$15,000 Year 5 \$10,000 Salvage value of the machine after 5 years is \$9,000. AB

### Quality Management for IT Projects

Details: Project selection directly affects organizational success. As BPP prepares to offer its new portfolio management services, it sees a need to address the project selection process. Provide a memorandum detailing the flow of information involved in a generic capital budgeting process. This will be used as a basis for d