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Capital Budgeting

Capital Budgeting

The following table shows two schedules of prospective operating cash inflows, each of which requires the same net initial investment of $10,000 now: Annual Cash Inflows Year_________Plan A________Plan B 1____________$1,000________$5,000 2_____________2,000_________4,000 3_____________3,000_________3,000

1. Compute net present value. 2. Compute internal rate of return. 3. Compute accrual accounting rate of return based on net initial investment. Assume straight-line depreciation.

Hammerlink Company has been offered a special-purpose metal-cutting machine for $110,000. The machine is expected to have a useful life of eight years, with a terminal disposal value of $30,000. Savings in cash operating costs are expected to be $25,000 per year. However, additional working capital is needed to keep the machine

Capital Budgeting Decisions with uneven cash flows: Southern Cola. Calculate Net present value, Payback period, Internal rate of return, Accrual accounting rate of return based on net initial investment.

Capital budgeting with uneven cash flows, no income taxes. Southern Cola is considering the purchase of a special-purpose bottling ma chine for $23,000, It is expected to have a useful life of four years with a $0 terminal disposal value. The plant manager estimates the following savings in cash operating costs: ____Year_

Capital Budgeting Tools

I would appreciate receiving a detailed draft response to the questions posed in the attached case study regarding capital budgeting. Please show any formulas and references used. References available on the Internet would be helpful.

Shares; Investment Appraisal (Payback, NPV, IRR)

1. You own $100,000 worth of Smart Money Stock. One year from now, you will receive a dividend of $2 per share. You will receive a $4 dividend two years from now. You will sell the stock for $50 per share three years from now. Dividends are taxes at the rate of 28%. Assume there is no capital gains tax. The required rate o

Financial Management Recommendation Assignments

Financial Management Assignment 2003/2004 Semester 2 Quinn Limited is a private family owned company, established in the late 1960's by Tom Quinn, who is the current managing director and 60% shareholder. Since incorporation the company has manufactured plastic trays and cups used on aeroplanes for passenger meals. Until the

Net Present Value

Hello, Could someone help me with the following problem. Thanks! Please see the attached document. These are the questions: 1) Using net present value computations and ignoring income taxes, analyze the one year and two year development alternatives. At this time, ignore the potential introduction of a comparable product b


1) How would you define and quantify risk as used in capital budgeting analysis? 2) What is the purpose of using sensitivity analysis? 3) What must an analyst undertake in setting up a decision tree? <b>...Please see attachment for all questions...</b> 12) What benefits accrue to a company by goin

1) Lease vs Purchase 2) Equipment Purchase Comparison

1) Lease vs. Purchase: The Hot Bagel Shop wishes to evaluate two plans, leasing and borrowing to purchase, for financing an oven. The firm is in the 40% tax bracket. Lease. The shop can lease the oven under a 5-year lease requiring annual end-of-year of $5000. All maintenance costs will be paid by the lessor, and insurance

Changes in net present value

In a long-term decision model for project feasibility, what impact on a developer-owner's net present value would occur for each of the following changes in the model's assumptions? 1. Decrease in the net present value. 2. Increase in the net present value. 3. No change in the net present value. Treat each item below

Simple Finance Problems for Present and Future Values

See attachment for complete questions Estimate the present and future values of the following income streams. The annual interest rate is 12% compounded monthly. The A Venture Capital is expected to grow at annual rate of 18% for the next four years, then at 12% for another three years, and finally settle down to a grow

Project funding with bonds

1. Aspen Tech is considering undertaking a $69 million investment project with expected cash flows of $8.2 million per year for 15 years, beginning at the end of the first year. (Assume the first $8.2 million is received at the end of the first year, the second $8.2 million at the end of the second year, etc.) Aspen Tech plans

WACC/NPV/Discounted Payback/IRR and MIRR

Following is an example from my study guide which I need assistance solving in order to complete similar problems for this week's assignments. 1. You are asked to evaluate a new product line. From talking with the engineering, marketing, and tax departments, as well as the vendors and banks, you arrive at the following assump

Call/Put Options, Net Present Value, Put-call parity

1. Applied Materials' long-term call options with a maturity of two years and an exercise price of $30 are selling for $3. AMAT's current stock price is $20 and it not expected to pay a cash dividend over the next two years. Assume an annual risk-free rate of 1.5 percent. (a) Is the call option in or out of the money? (b) Wh

Ajax new project: calculate cash flows, CAPM, required return, NPV and IRR

1. Ajax is considering a new project, Clear Clean (CC). CC requires an additional machine that costs $20 million dollars. It will be fully depreciated to a zero book value on a straight-line basis over 4 years. Each year for 4 years, CC will have revenues of $20 million, variable operating costs of $10 million and fixed ope

Budgeting, Overhead Rates and Decision Making

A company has the following for both June and July Per Unit : Sales Price 50 Direct Cost Material 18 Direct Wages 4 Variable Production Overhead 3 Per Month: Fixed Production Overhead 99000 Fixed Selling Expenses

Calculating the present value.

Suppose you retire at age 70, with a life expectancy of 20 more years, and you expect to spend $55,000 a year during your retirement. How much money do you need to save by age 70 to support this consumption plan? Assume an interest rate of 7%.

10 Corporate Finance Questions on Corporate Finance that discuss issues like Cost of Capital, Credit Policy, Working Capital Financing, Dividend payments, Capital Structure, Impact of write off of non performing assets

1. A company has a debt ratio greater than the industry average. How would an investor evaluate the implications of this higher debt ratio in making an investment decision in this company's common stock? 2. In your opinion, what are the major factors determining the kind of financing for working capital a company can secure?

Capital budgeting Process: WACC, payback, NPV, risk, ROA

1. Why would a manager use the Weighted Cost of Capital for investment decisions when a specific project may be funded by a particular source of capital, (e.g. debt or equity)? 2. What capital budgeting process and evaluation does your organization (or one you can talk to) use? Specifically what Pay Back Period and NPV di

Comparing investment criteria: payback, NPV, IRR, profitability index

Consider the following two mutually exclusive projects: (Please see attached spreadsheet for info.) Whichever project you choose, if any, you require a 15% return on your investment. a) If you apply the payback criterion, which investment will you choose? Why? b) If you apply the NPV criterion, which investment will y