How is capital budgeting used in an organization? What are the considerations that need to be analyzed when setting up a proposed budget?
Please discuss the pros and cons of each financial tool - NPV, IRR, payback, profitability index.
Dash Shoes Inc. Prepare a monthly cash budget and supporting schedules for June, July, and August 2010.
The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: June July August Sales 120,000 150,000 200,000 Manufacturing costs 50,000
Calculate the net present value of each of the following potential investments using a discount rate of 12%. Assuming that this discount rate is the threshold rate for capital investment projects in your firm, determine which should or should not be considered for the upcoming capital budget and why they should or should not be
Why is investing in foreign companies an effective way to diversity an individual's investment portfolio? A) Foreign economies are stronger than the U.S. economy. B) Foreign stocks are less risky than the stocks of U.S. corporations. C) Stock dividends received by foreign companies are not subject to US taxes for US citi
The projected cash flows for two mutually exclusive projects are as follows: Year Project A Project B 0 ($150,000) ($150,000) 1 0 50,000 2 0 50,000 3 0 50,000 4 0 50,000 5 250,000
1. Your brother has asked you to help him with choosing an investment. He has $5,000 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 4.25 percent with the interest being paid quarterly. What will be the value of the investment in two years? A) $5,434 B) $5,441 C) $5,107 D) $5,2
A1. (Calculating the WACC) The required return on debt is 8%, the required return on equity is 14%, and the marginal tax rate is 40%. If the firm is financed 70% equity and 30% debt, what is the weighted average cost of capital? A2. (NPV and PI) Vu Trading Company is evaluating a project that has the estimated cash flows gi
1.) You work for the Sing Oil Company, which is considering a new project whose data are shown below. What is the project's operating cash flow for Year 1? Sales revenues, each year $55,000 Depreciation $8,000 Other operating costs $25,000 Interest expense $8,000 Tax rate 35.0% 2) (Comp: 12.1-12.4) Salvage value calc
Since capital budgeting decisions involve the estimation of a project's future cash flows and the rate at which they should be discounted is still a relatively subjective process, the behavioral traits of managers still affect this process. How can managers better improve their ability to eliminate biases in their forecasting.
Problem 1 - Flexible budget planning Luke Chou, the president of Digitech Computer Services, needs your help. He wonders about the potential effects of the firm's net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal year 2012. Standard rate and variable cost
If the weighted average cost of capital for the firm is 4% and the projects are mutually exclusive, which project would you choose based upon the NPV rule?
For questions 26 through 34 use the following cash flows (if otherwise unspecified use a WACC of 6%): Cash Flows Years Project A Project B 0 $ (500,000.00) $ (500,000.00) 1 $ 80,000.00 $ 280,000.00 2 $ 130,000.00 $ 230,000.00 3 $ 180,000.00 $ 180,000.00 4 $ 270,000.00 $ 130,000.00 5
Discounted Cash Flow Alternatives There are a number of different approaches that can be used to evaluate whether a company should approve a particular project. Each method has specific advantages and disadvantages, and certain scenarios could benefit from the use of a particular method. Consider your professional experienc
Problem 1 A firm has the following investment alternatives. Each one lasts a year. Investment A B C Cash inflow $1,150 $560 $600 Cash outflow $1,000 $500 $500 The firm's cost of capital is 7 percent. A and B are mutually exclusive, and B and C are mutually exclusive.
4. As a financial analyst, you've been assigned to evaluate a project for your firm that requires an initial investment of $200,000, is expected to last for 10 years, and which is expected to produce aftertax cash flows of $44,503 per year. If your firm's cost of capital is 14%, will you recommend the project be accepted or reje
The Payback method is widely used in capital budgeting because it is simple and does a good job of determining the correct accept/reject decision.
1. The Payback method is widely used in capital budgeting because it is simple and does a good job of determining the correct accept/reject decision. a. True b. False 2. When using the Internal Rate of Return (IRR) method to evaluate investments, those with an IRR greater than zero should be selected, and those with an
1. Explain how both small and large organizations can benefit from budgeting. 2. Explain why a company can show it has a substantial amount of revenue and yet not able to pay its current liabilities? 3. Have you been directly or indirectly involved in a budgeting process? Briefly describe the process that you have been inv
23. Determine how much an investor would collect after 25 years if $100,000 is deposited and is compounded annually at 10%. 25. What is the future value of a $250 annuity at the end of the next 5 years if the annual compounding rate is 10%? 26. A zero coupon government bond can be converted to $25,000 at maturity 10 years
The concepts are: -Discounting Find a related article at Bloomberg. Remember to focus upon your selected concept in your analysis.
Using the case "Celtel International B.V." (Harvard Business School case, no. 9-805-061) address the following: 1. General analysis: provide a brief synopsis of the case situation, a brief characterization of the country or regional business environment, an identification of the main problem(s) raised in the case, and your ge
10-5: (Payback period, NPV, PI, and IRR calculations) You are considering a project with an initial cash outlay of $80,000 and expected free cash flows of 20,000 at the end of each year for 6 years. The required rate of return for this project is 10 percent. a. What is the project's payback period? b. What is the project's NPV
Summarize Making Norwich Tool's Lathe Investment Decision case in Ch. 9 of Principles of Managerial Finance. See the attached files.
What is the expected value of the company's debt in one year, with and without the expansion? ECONOMIC GROWTH PROBABILITY WITHOUT EXPANSION WITH EXPANSION Low .30 $11,000,000 $13,000,000 Normal .50 $17,500,000 $24
We use WACC as discount rate to find the present value of future cash flows emerging from a project, so it is of immense importance to calculate the correct WACC. And you are also aware that if the WACC is incorrect it may lead to serious consequences. Could you expand on this? 2-If a firm decides it will only fund projects with a specific high rate of return what might happen to the risks and cost of funds for the firm over time? 3-Why would a company focus on short term cash inflows and use the payback method as a capital project decision-making tool? 4- Why would the payback method still be used frequently in companies? Are there times when the payback method can be used effectively and for what types of projects? 5-If we consider how sunk costs relate to making business decisions, how do sunk costs figure into incremental analysis? 6-Can anyone think of examples of how we make use of sensitivity analysis in our job functions and decision-making? 7-In thinking of how our organizations approach new project decision-making, what process is used? What types of tools are used to evaluate projects and are there guidelines used for expected returns? 8- Using a SWOT analysis is a good part of the strategic planning process. Once a list of potential projects are selected is there a means of forecasting financial results through the use of payback, IRR, MIRR, or NPV?
-We use WACC as discount rate to find the present value of future cash flows emerging from a project, so it is of immense importance to calculate the correct WACC. And you are also aware that if the WACC is incorrect it may lead to serious consequences. Could you expand on this? 2-If a firm decides it will only fund pr
Please help with the following problem. Calculating Expected Cash Flows, NPV, and Present Value for The UPS Store Franchise Opportunity Calculate the following: Expected cash flows given forecasted profit Present value and net present value You will use this and previously developed information to formulate your final
P8-41 Dunn Manufacturing: Present value of proposed project, profitability index, internal rate of return
Problem 8-41 Dunn Manufacturing Company is considering the purchase of a factory that makes valves. These valves would be used by Dunn to manufacture water pumps. The purchase would require an initial outlay of $1,564,800. The factory would have an estimated life of 10 years and no residual value. Currently, the company buys
Public Budgeting: Distinguish between capital budgets and operating budgets; List the warning signs for a municipality that is in financial trouble.
Two Public Budgeting questions: Distinguish between capital budgets and operating budgets &List the warning signs for a municipality that is in financial trouble.
The board of directors of Trinity Hospital is working on a five-year strategic plan for the facility. One of the strategic goals is to build a new $1 million cancer research wing in five years. The group is concerned that current economic conditions might reduce revenues over the next five years and they are uncertain about the
Resource: Capital Budgeting Worksheet Choose a scenario from the Capital Budgeting Worksheet to review and analyze. Using net present value, determine the proposal's appropriateness and economic viability. Prepare a report explaining your calculations and conclusions. Answer the following in your report: ? Explain the
9- Present value calculation Without referring to tables or to the preprogrammed function on your financial calculator, use the basic formula for present value, along with the given opportunity cost, i, and the number of periods, n, to calculate the present value interest factor in each of the cases shown in the accompanying tab