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Capital Budgeting

Discounted Cash Flow Alternatives

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

What is the net present value of investment?

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.

Capital Budgeting: Wal-Mart Capital Projects

Every company has capital projects. Wal-Mart must need something! Be it a new wing to the building, a new product line to be funded, a new piece of equipment, find one new acquisition your company needs. Once you have identified the new possible investment item, what problems are you going to have in estimating the cash flow

Multiple Choice - Capital Budgeting

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

Discussion Questions

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

Present Value and Future Value Problems

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

Celtel International B.V.: Case Analysis and Review

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

Payback period, NPV, PI, and IRR calculations & Capital rationing

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

McKENZIE CORPORATION'S CAPITAL BUDGETING

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

Calculating Expected Cash Flows, NPV, and Present Value

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

Sensitivity Analysis : NPV, Profitability Index and IRR

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

Time and value of money

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

Using a Capital Budgeting Worksheet

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

Present value calculation

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

Capital Budgeting for Telecommunications Services

Telecommunications Services: Balance Sheet For the Year Ended December 31, 1992 (In Millions of Dollars) Cash and Securities $22.9 Accts Pay. $17.1 A.R. 118.8 Accruals 22.5 Inventory 27.5 Notes Payable $5.9 Current Ass. $169.2 Curr. Liab. $45.

Qualitative Considerations and The UPS Store Franchise

Final decision will hinge on the reliability of the estimates; however, not all decisions are purely quantitative. What qualitative elements should you consider as you begin to formulate your decision on The UPS Store franchise opportunity? Consider the following: In decision-making scenarios, risk pertains to known factors

Internal Rate of Return (IRR)..

Your firm has been hired to develop new software for the university's class registration system. Under the contract, you will receive $496,000 as an upfront payment. You expect the development costs to be $431,000 per year for the next three years. Once the new system is in place, you will receive a final payment of $837,000 fro

Project Financials: Financial Statements and Plans

After meeting with the VP of Accounting, you believe you need to get a better understanding of the plant construction project. You call the financial analyst working on the project and ask that she bring the financials to you to discuss the valuation methodologies. Meeting with the financial analyst, discuss three key valuation

Chief Financial Officers Simple Payback Method

Exercise 1. You are the new chief financial officer (CFO) hired by a company. The chief executive officer (CEO) indicates that in the past, there was little rhyme or reason for the prior CFO to approve or disapprove of large capital projects or investments that various managers proposed. You mentioned to the CEO that there are

Explanation for Capital Budgeting

In your own words, explain capital budgeting. Why is it important to a company's long-term success? Provide an example of poorly performed capital budgeting. How does this affect a company's long-term success? Why is capital budgeting part of a company's long-term strategic planning process? What are the pros and cons of the

Arbitrageur do to make a profit on gold forward contracts

The price of gold is currently $1300 per ounce. Forward contracts are available to buy or sell at $1400 for delivery in one year. an arbitrageur can borrow money at 6% per annum. What should the arbitrageur do? What is the arbitrage profit? Assume the cost of storing gold is zero and that gold provides no income.