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# Capital Budgeting

### Profitability Index

Profitability Index. Consider the following projects: Project C0 C1 C2 A -\$2,100 +\$2,000 +\$1,200 B - 2,100 + 1,440 + 1,728 Calculate the profitability index for A and B assuming a 22 percent opportunity cost of capital. b. Use the profitability index rule to determine which project(s) you should accept (i) if you co

### Is this project worth pursuing if the discount rate is 10 percent? How high can the discount rate be before you would reject the project?

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? How high can the discount rate be before you would reject the project?

### Risk Management

Scenario: You work for a major defense contractor. Your company prepared and submitted a bid for a recent Department of Defense RFP, entitled Automated Mobile Defense System (AMDS). You have been assigned to lead Project X, which will design, develop, test, demonstrate and deploy 10 AMDS units to a location to be determined

### Fixed and Current Assets: Evaluations of Performance.

Fixed and Current Assets: Evaluations of Performance. Metro Hospital has been under pressure to keep costs down. Indeed, the hospital administrator has been managing various revenue-producing centres to maximize contributions to the recovery of operating costs of the hospital as a whole. The administrator has been consider

### Present value of streams of payments

Assuming an interest rate of 10%, calculate the present value of the following streams of yearly payments a) \$1,000 per year, forever, with the first payment one year from today b)\$500 per year, forever, with the first payment two years from today c)\$2,420 per year, forever, with the first payment three years from today

### Time Value of Money and Capital Budgeting

1. You are the finance manager of this high-tech company and you have to prepare a final recommendation on the acquisition of some important equipment to be used in the manufacturing plant. There are two options, to buy it paying cash upfront or to lease it. The cost of the equipment if paid in cash upfront is \$ 180,000 based o

### Managerial accounting

Please help with the following managerial accounting problem. Provide step by step calculations. Your company plans to acquire one of two assets. asset a costs \$162,500 and has expected annual cash savings of \$37,500. asset b cost \$225,000 and has expected annual cash savings of \$77,500. You'll use the straight-line deprecia

### Finance

If the risk of a project substantially increased for a company, how would this increase affect each capital budgeting method (payback, discounted payback, NPV, IRR, PI, and MIRR) for that company?

### Market Analysis

Please provide an assessment of the financial feasibility of marketing a key prescription medication to new market segments (perhaps a medication just received a new indication) including any required investment and available sources of capital. Thank you

### Both the future and present value of a sum of money are based on?

These are questions that I cannot seem to find the answer to. Any sort of help would be greatly appreciated! --- Both the future and present value of a sum of money are based on? Interest rate Number of time periods Both interest rate and number of time periods None of the above mentioned What is an annuity? More

### Uncle Mike's Steak Shop is having a good year

Can you please help me with these sample questions that I am trying to figure out in order to answers other questions similar to these? ** See attachment for complete details!! ** ----- Uncle Mike's Steak Shop is having a good year, and he is giving serious thought to opening up a second branch...

### Sotzie Toy Company: Budgeting Problem

Sotzie Toy Company is selling Patton and Eisenhower dolls. Each doll sells for \$10. Patton dolls would sell 50,000 and Eisenhower 35,000 the first year. Patton dolls would see an annual increase of 5% with the Eisenhower dolls 7%. The VCR (Variable Cost Rate) for Patton is 50% and Eisenhower 40%. A straight-line method is used i

### NPV and IRR of an investment

Investment Criteria. If you insulate your office for \$10,000, you will save \$1,000 a year in heating expenses. These savings will last forever. a. What is the NPV of the investment when the cost of capital is 8 percent? 10 percent? b. What is the IRR of the investment? c. What is the payback period on this investment

### Why does capital budgeting rely on analysis of cash flow rather than net income?

Why does capital budgeting rely on analysis of cash flows rather than on net income? What does the term 'mutually exclusive investments' mean? If corporate managers are risk-averse, does this mean they will not take risks? Explain. Explain how the concept of risk can be incorporated into the capital budgeting process.

### Capital investment evaluation for mutually exclusive project

20.) Miller Electronics is considering two new investments. Project C calls for the purchase of a coolant recovery system. Project H represents an investment in a heat recovery system. The firm wishes to use a net present value profile in comparing the projects. The investment and cash flow patterns are as follows: Project C (\$

### Cash Flow

7.) X-treme Vitamin Company is considering two investments, both of which cost \$10,000. The cash flows are as follows: 1. 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 projects should be chosen based on the payback method? b. Which of the two projects should be chosen based

### Rate of return/standard deviations

Chapter 12 Problems 7. 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 projects should be

### Cost of capital/internal rate of return/standard deviation

Chapter 12 Problems 7. 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 projects should be

### Present the rhetorical triangle

Audience: Fifty students who have neither seen the Classroom Materials nor read the readings for this unit Topics: The Rhetorical Triangle, the speaker, the audience, the topic/setting Rhetorical Triangle: The dynamic relationship among the speaker, the audience, and the topic/setting is known as the Rhetorical Triangle.

### Labor Econ

Congress frequently considers proposals to reduce the rate at which capital gains are taxed (i.e. lowering the costs of capital). Proponents believe that the reduced capital gains tax rate would encourage businesses to expand and hire more workers. Opponents argue that such a tax cut would primarily benefits stockholders. Althou

### Multiple choice, please show the work if you can

Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. You are given the following data: r* = real risk-free rate = 4% Constant inflation premium = 7% Maturity risk premium = 1% Default risk premium for AAA bonds = 3% Liquidity premium for long-term T-bonds

### Logistics / production & operations management

Subject: Logistics / Production & Operations Management 1 file attached: (1) "Claris -- answers.xls" --- This file includes 3 different worksheets: one worksheet states some numerical facts from the case; another worksheet has my notes on areas of improvement I think Claris should consider; and the other worksheet has a sp

### Labor Economics

Congress frequently considers proposals to reduce the rate at which capital gains are taxed (i.e. lowering the costs of capital). Proponents believe that the reduced capital gains tax rate would encourage businesses to expand and hire more workers. Opponents argue that such a tax cut would primarily benefits stockholders. Althou

### NPV/IRR/Profitability Index

Consider the data on the following two mutually exclusive projects under consideration by the Stephen Company: Year Project A Project B 0 -30,000 -60,000 1 10,000 20,000 2 10,000 20,000 3 10,000 20,000 4 10,000 20,000 5 10,000 20,000 The cost of capital is 14%.

### 6 Finance Problems: Calculate WACC, NPV, cash flow, EAA, IRR, abandonment value

Hilliard Corp. wishes to calculate its weighted average cost of capital. The firm's CFO has gathered the following information: ? The firm's long-term bonds currently offer a yield to maturity of 8%. ? The company's stock price is currently at \$32 per share. ? The most recent dividend at t= 0 was \$2 per share. ? The dividend

### Estimating the Cost of Capital

Over the past few years, My Company has been too constrained by the high cost of capital to make amny capital investmens. However, recently, capital costs have been declining, and the company has decided to look at a major expansion program. The information below is provided to estimate the company cost of capital: 1. T

### Mutually exclusive Projects

My small business is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below: Year Project X Cash Flow Project Y Cash Flow 0 -\$2,000 -\$2,000 1 200 2,000 2 600 200 3 800 100 4 1,400 75 The projects are equally risky, and my small business cost of c

### Master Budgets

Once individual annual budgets have been prepared, they are combined into a large budget called the master budget. Some of the budgets included in the master budget are the sales, purchases, operating expenses, capital and cash budgets. Ben and Jerry's Homemade, Inc., make ice cream and frozen yogurt products. Describe some

### Incremental cash flows, depreciation, net present value

Here is the problem: Paul's Pizza is considering the purchase of a new pizza oven. The original cost of the old oven was \$30,000.; it is now 5 years old and it has a current market value of \$13,333.33. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straigh-line basis, result

### 6 Problems

1. Assume a project has normal cash flows, that is, the initial cash flow is negative, and all other cash flows are positive. Which of the following statements is most correct? It can be more than one statement: -All else equal, a project's IRR increases as the cost of capital declines -All else equal, a project's NPV increas