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# Capital Budgeting

### Internal Rate of Return and NPV Calculations

(a) A capital investment requiring one initial cash outflow is forecast to operating profits (cash) as follows Year 1 \$74,000 Year 2 \$84,000 Year 3 \$96,000 Year 4 \$70,000 The investment has an NPV of \$20,850 based on a required rate of return of 12%. Calculate the payback period of the investment. (b) The initi

### NPV, Internal Rate of Return (IRR), and Discount Rates

I'm getting ready to start a Finance class. I'm reading ahead in the book to try and prepare myself for the course. I have a 4.0 GPA and really want to maintain it through graduation; however, this finance book seems like it is pretty daunting! I'm trying to understand these concepts and there are a few problems that I would lik

"Caladonia Products" Integrative Problem Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows: YEAR PROJECT A PROJECT B 0 -\$100,000 -\$100,000 1 32,000 0 2 32,000 0 3 32,000

The acceptance of a capital budgeting project is usually evaluated on its own merits. That is, capital budgeting decisions are treated separately from capital structure decisions. In reality, these decisions may be highly interwoven. This may result in: A. firms rejecting positive NPV, all equity projects because changing to

### Present Value and Capital Budgeting

Why is the present value important for understanding capital budgeting? Which is the best present value method and why?

### NPV/Discount Payback Period

The new project has a cost of \$52,125, its expected net cash inflows are \$12,000 per year for 8 years, and its cost of capital and its cost of capital is 12 percent. What is the project's discount period and NPV

### Present Values

Present Values. Compute the present value with the information provided below. Cash flow \$137 a. rate 5% time 13 yrs b. rate 7% time 14 yrs c. rate 9% time 17 yrs d. rate 11% time 20 yrs

### Debt-Equity - Budgeting

1. A firm has \$ 4 millions in total assets and 2.2 millions in equit. How much of its \$500,000 capital budget should be debt-financed to retain the same debt-equity ratio? 2. A firm has an unused machine that originally cost \$75,000, has a book value of \$20,000 and is currently worth \$25,000. Ignoring taxes, the correct oppo

### Relevant annual after-tax cash flow

ABC Corp is considering the various benefits that may result from the shortening of its products cycle by changing from the company's present manual system to a computer-aided design / computer-aided manufacturing (CAD/CAM) system. The proposed system can provide productive time equivalence close to the 20,000 hours currently av

### Steps to Formulating Operation Budgeting

Nathan's Place, open 365 days, consists of an 100 room motel with a 50 seat restaurant shop. Nathan Harris provides you with the following information: 1. Of the 100 rooms, 80 are doubles and 20 are singles. 2. The doubles are sold for \$65 each and the singles are sold for \$50 each. 3. Forecasted oc

### End of year cash flows

The Walker Landscaping Company can purchase equipment on sale for \$3,200. The asset has a two-year life, will produce a cash flow of \$800 in the first year, and \$3,000 in the second year. The interest rate is 15%. REQUIRED: 1) Assuming end of year cash flows, calculate the project's: a) the project's payback, b) IRR and c) NP

### Present value of salary arrangement

You have just joined a regional investment banking firm. They have offered you two different salary arrangements. You can have \$81,000 per year for the next 3 years or \$60,000 per year for the next 3 years, along with a \$50,000 signing bonus today. If the market interest rate is 16%, what is the present value of the best salary

### Capital Budgeting and Cash Flow Estimation

11-12 Capital Budgeting and Cash Flow Estimation After seeing Snapple's success with noncola soft drinks and learning of Coke's and Pepsi's interest, Allied Food Products has decided to consider an expansion of its own in the fruit juice business. The product being considered is fresh lemon juice. Assume that you were recen

### Benefits of knowing IRR of a Project

What are the advantages of knowing the internal rate of return of a project or investment? Please explain with example(s).

### Miscellaneous Finance Questions

1)A state's lottery winner is promised \$200,000 a year for twenty years (starting at the end of the first year). How much must the state invest now to guarantee the prize if the state can earn annually 7 percent on its funds? How much must the state invest if the annual payments were made at the beginning of the year? 2)A hom

### Residual Dvidend Model

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% equity and 40% debt; it has 1,000,000 share

### Present Value

On January 1, 2004, Grant Co. issued ten-year bonds with a face amount of \$5,000,000 and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows: 8% 10% Present value of 1 f

### Calculate key financial metrics

Problem: Strident Marks is considering purchasing new manufacturing equipment that costs \$1,300,000 and is expected to improve cash flows by \$500,000 in year 1, \$350,000 in year 2, \$475,000 in year 3, \$450,000 in year 4, and \$300,000 in year 5. Calculate key financial metrics for this capital budgeting project. Assume a 14% ra

### Project Plan Input

I need help in addressing the following topics with respect to the attached project plan. Please be clear and concise in your responses. - Can you create a summary that identifies the project, the recommendation and expected results in high level business and financial terms. Please explain how you arrived at these conclusion

### Valuation of a constant growth stock, NPV, IRR, MIRR, payback, discounted payback

A) Valuation of a constant growth stock - A stock is expected to pay a dividend of \$0.50 at the end of the year (that is D1 = 0.50), and it should continue to grow at a constant rate of 7 percent a year. If its required return is 12 percent, what is the stock's expected price 4 years from today? B) Cost of common

### Financial processes of a business: options for improving ratios and dealing with business decisions about debt, capital budgeting and working capital

1. How does working capital impact a company's finances? 2. What a company can do to handle short-term debt that is coming due? 3. Explain current ratio, discuss its implications, and describe a good current ratio. 4. Describe briefly how businesses make capital budgeting decisions. *List any references used along wi

### Merger & Acquisition: Team Assignment

This is part of a team assignment. This will be a report to the board of directors that identifies a synergistic acquisition candidate for your company. An acquisition of UST by Altria. The 2006 annual report for both companies are attached. i. This report should clearly identify the following: 1) Your propose

### NPV, IRR, and Payback

CU Boxes Inc. makes boxes for shoe manufacturers. One of the machines that CU uses may need replacement. The following information is available to you: Revenues will not change if the machine is replaced. Both the present machine and the new machine will last 5 years and will have no disposal value in five years. The new mac

### Error in Expected Present Value

The followings are the forecasted financial information on ABC Company: Year : 0 / 1 / 2 / 3 / 4 to n Accounting profit (millions) : 0.9 / 0.9 / 0.9 / 0.9 / 0.96 Net cash flow (millions) : -5.8 / 0.7 / 2.1 / 3.8 / 0.58 Without doing any calculation, any mistakes(s) made in the following calculation: << The curren

### The Impact of Unethical Behavior & Sarbanes-Oxley Act

If I wanted to provide and analysis in which you identify situations that might lead to unethical practices and behavior in accounting. How would i examine the impact of the Sarbanes-Oxley Act on financial statements.

### Cost Reallocation

Based on the attached article I need help answering the following questions Describe the process of allocation of costs in this organization. Do you agree with the approach? Why or why not?. Identify those situations when common costs are allocated. Explain the impact of allocating common costs for internal decision m

### Finances Multiple Choice Questions & Problems

Multiple Choice Questions: 1. Corporate managers are expected to make corporate decisions that are in the best interest of A) top corporate management. B) the corporation's board of directors. C) the corporation's shareholders. D) all corporate employees. 2. Financial markets are used for trading: A)

### Identifying synergistic acquisition candidate

This will be a report to the board of directors that identifies a synergistic acquisition candidate for your company. i. This report should clearly identify the following: 1) Your proposed acquisition terms 2) Price 3) Financing 4) Potential negotiation strategies j. Supporting financial d

### Decisions Regarding Long-Term Financial Management

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

### Profitability Index/Mutually exclusive investments with unequal lives

PROFITABILITY INDEX: Another project under consideration by Clayton Systems is the upgrading of its data processing operations. To change its operation will require a \$1,500,000 investment and the new equipment will have a useful life of five years. The firm currently contracts out almost all of its data processing needs to an