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Capital Budgeting

U.S Dollar Equivalent of Money Today

Angela's aunt put aside $15,000 for her MBA graduation present on March 31, 2001. As an incentive, the aunt invested the funds in Italy, Australia, and China at 3% per year. The funds were divided equally with $5,000 converted to each local currency on March 31, 2001. When Angela graduates in May 2012, her aunt will allow her to

Harry Smith is considering the purchase of a red van

Harry Smith is considering the purchase of a red van for use in shuttling people to a local airport. The van will cost $40,000 and is expected to last 5 years. He expects to sell the van at the end of year 5 for $6,000. After paying wages to drivers, taxes, fees, gasoline, maintenance and other costs, he expects the following ca

Calculating Present Value of $5,800

Calculate the present value of $5,800 received at the end of year 1, $6,400 received at the end of year 2, and $8,700 at the end of year 3, assuming an opportunity cost of 13 percent. Show work. PV = ?

Capital Projects Questions

1. How do capital projects maximize firm value? 2. How do major capital projects impact a firm's stock market valuation? 3. How should they fit with the strategic direction of the organization? Please provide references for future research.

Net Present Value and Capital Investment Decision Making

Examine and discuss the characteristics of NPV and the role that this method plays in capital investment decision making. In addition, discuss the advantages of using this method instead of the other evaluation methods such as: - Accounting rate of return (ARR) and payback period (PP) - Internal rate of return (IRR) - Appra

Project Acceptance Citeria

Can you help me with the following: Assume that you are a senior accountant or financial analyst for a publically traded company. In an environment of scarce resources, create criteria to decide whether a project should be accepted or rejected by the management team.

Guillermo Furniture Scenario: Capital Budget Recommendations

Guillermo Furniture, a company that manufactures mid-grade and high-end sofas, has just hired you as an accountant. The owner, Guillermo Navallez, has assigned you the tasks of determining which decisions provide the greatest returns. Review the Guillermo Furniture data sheets (attached). The Guillermo Furniture Store Scenar

Financial Accounting and Managerial Accounting

Briefly discuss the main difference between Financial Accounting and Managerial Accounting? Are there any crossovers that might make the research for one assist in the finding information for the other? Discuss the difference between direct costs and indirect costs? Is the line so bright between the two. Provide experiences in y

Brown Corporation - IRR

Brown Corporation recently purchase a new machine for $253,616 with a ten-year life. The old equipment has a remaining life of 10 years and no disposal value at the time of replacement. Net cash flows will be $60,500 per year. What is the internal rate of return (IRR)? a 12.00% b 16.00% c 20.00% d

Capital Budgeting

The Board of Representatives for Jefferson County is considering the construction of a longer runway at the county airport. Currently, the airport can handle only private aircraft and small commuter jets. A new, longer runway would enable the airport to handle the midsize jets used on many domestic flights. Data pertinent to the

Capital Budgeting NPV IRR

Explain the concepts of net present value and internal rate of return analysis. What do the results of net present value and internal rate of return analysis tell senior managers of an organization? Would sensitivity analysis be a useful tool for assessing this capital project's risk and return?

Accelerate Collection of Cash: IRR, NPV, WACC and IRR Payback

Consider the following potential investment, which has the same risk as the firm's other projects: Time Cash Flow 0 -$75,000 1 $10,000 2 $16,000 3 $18,000 4 $18,000 5 $18,000 6 $20,000 a) What are the investment's payback period, IRR, and NPV, assuming the firm's WACC is 10%. b) If the firm requires a payback period

Capital Budget Process & Goal Alignment

Why is the capital budget process so important to an organization? How might a manager align these requests with the needs of their departments as well as the overall success of the organization?

Soto Corporation's balance sheet indicates that the company has $300,000 invested in operating assets. During 20111, Soto earned operating income of $45,000 on $600,000 of sales

1. Soto Corporation's balance sheet indicates that the company has $300,000 invested in operating assets. During 20111, Soto earned operating income of $45,000 on $600,000 of sales. Required: A. Compute Soto's profit margin for 2011 B. Compute Soto's turnover for 2011 C. Compute Soto's return on investment for 2011 D. Recom

NPV & Payback & IRR

Based on the numbers in the spreadsheet (see attachment): What would the IRR be if NPV was 0? (for both the equity case and the leveraged case)? And the Discounted Payback would be for how many years?

Performance budgeting

Performance budgeting has been attempted at the local level in recent years. Address the issues of performance budgeting while answering the following questions: What attributes of performance budgeting make it particularly suitable to local government budgeting? Will the same attributes be as useful at the federal level?

Deer Valley Lodge: NPV, rate of return, MACRS, after-tax NPV, investment decision

Deer Valley Lodge, a ski resort in the Wasatch Mountains of Utah, has plans to eventually add five new chairlifts. Suppose that one lift costs $2 million, and preparing the slope and installing the lift costs another $1.3 million. The lift will allow 300 additional skiers on the slopes, but there are only 40 days a year when the

Capital budgeting for a Well-Established Coffee Shop

A quaint but well-established coffee shop, the Hot New Café, wants to build a new café for increased capacity. It's expected sales are $800,000 for the first 5 years. Direct costs including labor and materials will be 50% of sales. Indirect costs are estimated at $100,000 a year. The cost of the building for the new cafe will

Clarification of Net Present Value (NPV)

It appears that NPV or net present value is the best method because it takes into account the initial financial outlay, and brings the future projections back to the present day's value to figure out which is worth pursuing in the long run. Entrepreneurs take many risks, but of course, most wish to take the most calculated risks

Failing Businesses: Pledging

Pledging seems like a last chance effort to save your business. Shouldn't a business owner really consider profit margins before using this technique? What is the point if at the end of the month, the 10% that is paid out gives you a negative profit margin?

Cost of Capital and Net Present Value (NPV)

I have a few problems to work on for my practice class. Please show me your steps to the solution/formulas use. Thank you. Problem #1 The market value of Charcoal Corporation's common stock is 20 million, and the market value of its risk-free debt is $5 million. The beta of the company's common stock is 1.25, and the

Present Value and Capital Budgeting

Calculating present value. A. Suppose your bank account will be worth $15,000.00 in one year. The interest rate (discount rate) that the bank pays is 7%. What is the present value of your bank account today? What would the present value of the account be if the discount rate is only 4%? B. Suppose you have two bank acco

Corporate Finance Project

A) Would the projects that have a higher IRR pose greater risk over time? How does the IRR play a role in the risk assessment of a particular project? B)With respect to those projects with higher individual IRR's, how does this impact the outcome of their financing decisions? What is the relationship of risk associated with

firm's Break-even Point

Sales (100 units) $200 Variable costs ($.80 ea) 80 Fixed Costs 20 EBIT 100 Interest Expense 30 EBT 70 Incom


A project has an initial cost of $65,000, expected cash flows of $14,000 per year for 9 years and a cost of capital of 11%. Answer the following: a. What is the IRR? b. What is the payback period? c. What is the NPV?

Budgeting for Unit Purchases

Not sure which method to use to work out the following problem: Nano, Inc. is preparing its budget for the second quarter. The following sales data have been forecasted: April May June July August Unit Sales ............ 640 720 780 620 680 Additional Info


1. Prefer a centralized or decentralized approach to budgeting, why? 2. What is meant by bottom-up or top-down with regard to budgeting?