You are considering two mutually exclusive alternatives to perform a specific task. Machine A costs $150,000 and machine B costs $200,000. The first year costs for A are $1,000 and $500 for B. These costs are expected to rise at a rate of 10% per year for the 10 year study period. Both machines qualify as 5 year MACRS (GDS)
You are evaluating purchasing the rights to a project that will generate after tax expected cash flows of $90,000 at the end of each of the next five years, plus an additional $1,000,000 at the end of the fifth year as the final cash flow. You can purchase this project for $950,000. At this price, what rate of return would you
Economic Profit and NPV Steele Electronics is considering an investment in a new component that requires a $100,000 investment in new capital equipment, as well as additional net working capital. The investment is expected to provide cash flows over the next five years. The anticipated earnings and project free cash flows for
(Hint: Table 7.5 on page 279 and the discussion regarding that table in your text should be extremely helpful in completing this case study.) Bethesda Mining is a mid sized coal mining company with 20 mines located in Ohio, Pennsylvania, West Virginia, and Kentucky. The company operates deep mines as well as strip mines.
13. The final two mutually exclusive projects that Caledonia is considering involve mutually exclusive pieces of machinery that perform the same task. The two alternatives available provide the following set of after-tax net cash flows: YEAR EQUIPMENT A EQUIPMENT B 0 -$100,000 -$100,000 1 65,000 32,500 2 65,000 32,500 3 65,
3. Bagel Pantry Inc. is considering the following two projects. The company's cost of capital is 12%. The projected cash flows are summarized as follows: Time Project A Project B 0 $(25,000) $(23,000) 1 14,742 6,641 2 14,742 6,641 3 14,742 6,641 4 6,641 5 6,641
You are considering an investment in a project with a life of eight years, an initial outlay of $120,000, and annual after-tax cash flows of $52,000. The project also requires an increase in inventories of $22,000. This $22,000 investment in inventory is required at the outset of the project and will be released when the project
The authors present the merits of capital budgeting model like Net Present Value and Internal Rate of Return. If you are a Budgeteer, which method would you favor and Why?
For each of the projects shown in the following table, calculate the internal rate of return (IRR). Intial Cash Outflow Prjct A Prjct B Prjct C Prjct D $72,000 440,000 18,000 215,00 Inflows in year 1 16,000 135,000 7,000 108,00
Can you help me get started with this assignment? You are shopping for a car and read the following advertisement in the newspaper: "Own a new car. No money down. Four annual payments of just $10,000." You have shopped around and know that you can buy the car for cash for $32,500. What is the interest rate the dealer is
As the capital budgeting director for my company, I am evaluating construction of a new plant. The plant has a net cost of $5 million in Year 0 (today), and it will provide net cash flows of $1 million at the end of Year 1, $1.5 million at the end of Year 2, and $2 million at the end of Years 3 through 5. Within what range is th
ABC company is analyzing two mutually exclusive projects, X and Y, whose cash flows are shown below: Years 0 r = 12% 1yr 2yr 3yr X -1,100 1,000 350 50 Y -1,100 0 300 1,500 The company's cost of capital is 12 percent, and it can get an unlimited amount of capital at that cost. W
Parr Paper's stock has a beta of 1.40, and its required return is 13.00%. Clover Dairy's stock has a beta of 0.80. If the risk-free rate is 4.00%, what is the required rate of return on Clover's stock? (Hint: First find the market risk premium.)
Company want to buy a machine for 66,000. The annual cash flow have the following projections Year Cash flow 1 21,000 2 29,000 3 36,000 4 16,000 5 8,000 If the cost of capital is 10 percent what is the net present value? What is the internal rate of return?
Warner Business Products is considering the purchase of a new machine at a cost of $11,070. The machine will provide $2,000 per year in cash flow for eight years. Warner's cost of capital is 13 percent. Using the internal rate of return method, evaluate this project and indicate whether it should be undertaken.
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million.
I am posting some problems and need someone for help; I am using a financial book, from Jonathan Berk and Peter Demarzo (CORPORATE FINANCE). Those problems come from chapter 6 on that book. ISBN 0-201-74122-9 (alk.paper) Please do problems #16; # 18 and # 19. (Mutually Exclusive Investment Opportunities For # 16 and # 18) (
Question 11: (1 point) (Ignore income taxes in this problem.) Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $308,325, would have a useful life of 6 years, and would have no salvage value. The tractor-trailer would be used in the company's hauling business, resulting in additional net cas
Multiple Choice Questions in finance: cost of capital, cost of debt, cost of equity, capital structure weights, WACC, debt-equity ratio, preferred stock, rate of return, pure play approach, beta, net present value, discount rate
1. A firm's overall cost of capital: d. varies inversely with its cost of debt. a. is unaffected by changes in the tax rate. e. is another term for the firm s internal rate of return. b. is the same as the firm s return on equity. c. is the required return on the total assets of a firm. 2.
8. Cash Dividends. The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $0.50 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown on the following table. Assets Liabilities and Equity Cash $100,000 Equity $1,000,000 Fixed Assets $900,000
An investment has a total installed cost of $5,346. The cash flows over the four year life of the investment are projected to be $1,459, $2,012, $2,234, and $1,005. a) If the discount rate is zero, what is the NPV? b) If the discount rate is infinity, what is the NPV? c) What is the IRR on the investment? d) Based on th
Mr. Polly Femus, the president of Monocle Enterprise, is evaluating the following two mutually exclusive investments: Cash Flows C0 C1 C2 Project A -$400 $241 $293 Project B - 200 131 172 a) Determine the IRR for each. b) If Mr. Femus chooses the project with the higher IRR, under what circumstances will h
Currently, Warren Industries can sell 15 year, $1000-par value bonds paying annual interest at a 12% coupon rate. As a result of current interest rates, the bonds can be sold for $1,010 each: flotation costs of $30 per bond will be incurred in this process. The firm is in the 40% tax bracket. a) Find the net proceeds from sal
Consider the project with the following expected cash flows: Year Cash flow 0 - $500,000 1 $100,000 2 $110,000 3 $550,000 ?If the discount rate is 0%, what is the project's net present value? ?If the discount rate is 4%, what is the project's ne
Classified stock Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT? a. All common stocks fall into one of three classes: A, B, and C. b. All firms have several classes of common stock. c. All common stocks, regardless of class, must have the sa
A Corporation makes an investment of $14,400 that provides the following cash flow: Year Cash Flow 1...........$7,000 2.......... 7,000 3.......... 4,000 A. What is the net present value at an 11 percent discount rate? B. What is the internal rate of return? Use the interpolation procedure shown in this chapt
Firm Y is expanding. to do this they will need new equipment that costs $648,000 that would be depreciated on a straight-line basis to a zero balance over the 5-year life of the project. The estimated salvage value is $224,000. The project requires $46,000 initially for net working capital, all of which will be recouped at the e
Kingsbury Associates has current assets as follows: Cash $3,000 Accounts receivable $4,500 Inventories $8,000 If Kingsbury has a current ratio of 3.2, what is its quick ratio? a. 2.07 b. 1.55 c. 0.48 d. 0.96 Which of the following will decrease discretionary funds nee
I am having problems trying to figure this out. My company is considering whether to invest in a project with an initial cost $538,000 that will provide annual net cash inflows of $82,500 for 10 years. I need to use the interpolation to estimate the internal rate of return.
1. An investment requires an initial cash outlay of $100,000 and additional outlays of $50,000 at the end of each of the first three years. This investment is expected to result in incomes of $40,000 at the end of the first year, $70,000 at the end of the second year, $90,000 at the end of the third year, and $120,000 at the e
1. IRR. Marielle Machinery Works forecasts the following cash flows on a project under consideration. It uses the internal rate of return rule to accept or reject projects. Should this project be accepted if the required return is 12 percent? C0 C1 C2 C3 -$10,000 0 +$7,500 +$8,500.