Review questions
Pretend that this restaurant Subway at a shopping mall is an indoor location has been open for 12 months and that business is slow and stockholders are putting pressure on us to do better. True or False? Please see attachment.
Pretend that this restaurant Subway at a shopping mall is an indoor location has been open for 12 months and that business is slow and stockholders are putting pressure on us to do better. True or False? Please see attachment.
Inflation and Capital Budgeting Problem: 11-49 The head of the corporate tax division of a major public relations firm has proposed investing $295,000 in personal computers for the staff. The useful life and recovery period for the computers are both 5 years. The firm uses MARC's depreciation. There is no terminal salvage
Shao Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao plans to serve the route for 10 years
You have estimated the expected NPV from a project to be $3 million with a standard deviation of $4 million. The distribution of the possible NPV is approximately normal. If you are willing to accept a 25 percent chance of incurring a negative NPV on the project, should it be undertaken?
Why is the N.P.V. considered to be theoretically superior to all other capital budgeting techniques? Reconcile this reasoning with the prevalence in practice of using the I.R.R. How would you respond to your C.F.O. if she instructed you to use the I.R.R. technique to make capital budgeting decisions on projects with cash flow st
A simulation model similar to the one described in this chapter has been constructed by The Great Basin Corporation to evaluate the largest of its new investment proposals. After many iterations of the model, Great Basin's management has arrived at an expected net present value for Project A of $1.0 million. The standard deviati
I am practicing in my NPV and other cash flows analysis methods. Please show me the steps and formulas used to arrive to solutions. Problem#1 What is the net present value of the following cash flows at a discount rate on 12%. T=0/-250,000 t=1/100,000 t=2/150,000 t=3/200,000. Problem#2 You would like to have eno
What is the present value of the following cash flow stream if the discount rate is 13 percent? 0 1 2 3 4 5 6 ??????????????????????????????????????????? 0 1 2,000 2,000 2,000 0 2,000
The Vice president of your division wishes to propose the implementation of a new service for your health care organization and has assigned the project to you. You have gathered all the information necessary to submit the proposal as part of the budget process for next year. You have determined that the new service will require
Essentially, there are four steps in calculating the equity value of a corporation: 1. Forecasting free cash flow for several years on an individual year basis . 2. Calculating terminal value at the end of this forecast time frame. 3. Discounting 1 & 2 with the company's weighted average cost of capital . 4. Subtracting o
Problem 1 ABC Corp is using NVP analysis to evaluate costs associated with orders. Customer credit terms are net 30 days. The opportunity costs to ABC are 10%. The variables costs to the company for each sale is 60% of the sale and administration of credit to customers is 1.5% of sales. A. If an order amount from a new cus
The Doraville Machinery Company is planning to expand its current spindle product line. The required machinery would cost $520,000. The building that will house the new production facility would cost $1.5 million. The land would cost $350,000. Working capital of $250,000 would
The Chen company is considering the purchase of a new machine to replace an obsolete one. The machine being used for the operation has both a book value and a market value of zero; it is in good working order, however, and will last physically for at least another 10 years. The proposed replacement machine will preform the opera
For what kinds of investments would terminal value account for a substantial fraction of the total NPV, and for what kind of investments would terminal value be relatively unimportant?
The Cal-Fruit Company specializes in decorative fruit baskets. Currently, the company is analyzing purchase alternatives for a fruit-polishing machine. Data relevant to the decision are as follows:...Please see attachment for questions.
A firm takes on a project that would earn a return of 12 percent. If the appropriate cost of capital is also 12 percent, did the firm make the right decision. Explain. What is the impact on the firm if it accepts a project with a negative NPV?
1.) A news clipping service is considering modernization. Rather than manually clipping and photocopying articles of interest and mailing them to its clients, employees electronically input stories from most widely circulated publications into a database. Each new issue is searched for key words, such as a client's company name,
A firm is considering investing in one of the three mutually exclusive projects E, F, G. The firms cost of capital, r, is 15% and the risk-free rate, Rf, is 10%. The firm gathered the basic cash flow and risk index data for the project, as shown below. Initial Investment CF0 E $15,000 F $11,000 G$19,000 Year
You work for a company that extends trade credit to customers. Currently your variable cost ratio is 65% and the annual rate of interest set by the company is 4% and the terms are a 30-day net. It costs you $0.07 on the dollar for administrative costs. Your monthly credit extension is $400,000 and you know (based on previous ca
What are three reasons that cash is worth more today than cash to be received in the future? Define the term return on investment. How is the return normally expressed? Give an example of a capital investment return. How does a company establish its minimum acceptable rate of return on investments? What criteria determine whethe
See attached file. A client has 3 competing investment alternatives which are anticipated to yield returns as indicated in the table provided below. You are to advise the client on the best investment having considered both the Payback and NPV methods. The NPV method will be at 10%. You will also need to write a report exp
See attached files. What information is needed to determine the present value of an investment? Using the information in the Guillermo Furniture Scenario and spreadsheet, how would you project the future cash flows each year over the life of one of the investment alternatives being considered? (Please provide a specific examp
6. The following data pertain to an investment that is being considered by the management of Sublex Company: Discount rate 10% Life of the project 5 years Cost of the investment $56,865 Annual cost savings 15,000 Estimated salvage value 3,000 What is the net present value of the proposed investment? Should the project
Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $100. The materials cost for a standard diamond is $50. The fixed costs incurred each year for factory upkeep and administrative expenses are $213,000. The machinery costs $2.4 million and is depreciated straight-line over 10 years to
Calculate the net present value of the following project for discount rates of 0, 50, and 100%: (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.) C C1 C2 ?$7,447.50 +$4,770.00 +$20,250.00 ----------------------------------
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
1. Based on the following information, calculate stockholders' equity: cash = $30; total current liabilities = $80; accounts receivable = $30; inventory = $90; net fixed assets = $220; accounts payable = $20; long term debt = $50. 2. Calculate the value of cost of goods sold for Large Stone Brewing given the following in
The following are the cash flows of two projects: Year Project A Project B 0 ?$340 ?$340 1 170 240 2 170 240
Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Since both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to opera
Coffee Company can buy new coffee machines for $4,500,000. The coffee machines will have a useful life of 10 years and have no salvage value. It is expected the coffee machines will produce a before tax profit of $1,200,000 per year. Assuming straight line depreciation is used, a tax rate of 45% and a cost of capital of 10% w