1) A firm uses a single discount rate to compute the NPV of all its potential capital budgeting projects, even though the projects have a wide range of nondiversifiable risk. The firm then undertakes all those projects that appear to have positive NPVs. Briefly explain why such a firm would tend to become riskier over time. 2
Busy Beaver Corp. is interested in reviewing its method of evaluating capital expenditure proposals using the accounting rate of return method. A recent proposal involved a $ 50,000 investment in a machine that had an estimated useful life of five years and an estimated salvage value of $ 10,000. The machine was expected to incr
Assume that Baps Corporation is considering the establishment of a subsidiary in Norway. The initial investment required by the parent is $5,000,000. If the project is undertaken, Baps would terminate the project after four years. Bapsâ?? cost of capital is 13%, and the project is of the same risk as Bapsâ?? existing projects.
Chapter 22, Problems A 3. (Cash conversion cycle) Dennis Lasser has collected some information about a food wholesaler in order to estimate its cash conversion cycle. The accumulated information is given. What will Dennis find the cash conversion cycle to be? Inventory turnover = 10x Inventory conversion period = 365/1
Harvard Business Case: 9-202-027 April 18, 2002 Angela Chao Ocean Carriers I need help with the mathematical analysis along with an explanation of the analysis and the conclusion.
1.Return to the Diversified Electronics case covered in class. (file attached) Suppose the annual lease payment is revised to $180,000. Then, relative to the alternative of buying the equipment, the after-tax cash inflows to Diversified are A.greater when the equipment is purchased. B.greater when the equipment is leased.
Can you help me get started on this assignment? Chapter 9: Net Present Value and Other Investment Criteria 1. An investment project requires an initial investment of $400 and produces a cash inflow of $460 in 1 year. The internal rate of return (IRR) on this project is 15%. If the cost of capital is 10%, then the NPV of th
1. You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 five years after the date of your retirement. Which alternative should you choose if the interest rate is: A)0% per year, B) 8% per year, C) 20% per year? 2. You have been offered a unique investment opport
1. The CEO of a highly profitable company, noticing that the excess cash not needed to fund business operations has accumulated in a company bank account that pays no interest, contemplates declaring and paying a cash dividend to common shareholders before year's end. The likely effect of paying the dividend would be to A.have
As the director of capital budgeting for ABC Corporation, you are evaluating two mutally exclusive projects with the following net cash flows: A B 200,000 -125,000 65,000 60,000 60,000 40,000 50,000 40,000 65,000 35,000 50,000 45,000 If ABC corp cost capital is 12%, defend which project would
Payments of 5000 and 7000 are due 3 and 5 yrs respectively from today. They are to be replaced by two payments due 1 1/2 and 4 yrs from today. the first payment is to be half the amount of the 2nd payment. what should the payments if money can earn 7.5% compounded semiannually?? ans: 3711.68 7423.35 Manuela purchased a bo
ACE Rental Cars, Incorporated (ACE) is analyzing whether to enter the discount used rental car market. This project would involve the purchase of 100 used, late-model, mid-sized automobiles at the price of $9,500 each. In order to reduce their insurance costs, ACE will have a LoJack Stolen Vehicle Recovery System installed in
1. Pierre Imports is evaluating the proposed acquisition of new equipment at a cost of $95,000. In addition the equipment would require modifications at a cost of $10,000 plus shipping costs of $2,000. The equipment falls into the MACRS 3-year class, and will be sold after 3 years for $35,000. The equipment would require an
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: o Explain the effect of a higher or lower cost of capital on a firm's long-term financial decisions. o Analyze the use of cap
Question: Wachowicz Inc. is considering two average-risk alternative ways of producing its patented polo shirts. Process S has a cost of $8,000 and will produce net cash flows of $5,000 per year for 2 years. Process L will cost $11,500 and will produce cash flows of $4,000 per year for 4 years. The company has a contract that re
Konika Ltd. is considering manufacturing a new product. This requires machinery costing Tk. 20,000 with a life of four years and a terminal value of Tk.5,000. Profits before depreciation from the project will be Tk.8,000 per annum. An investment of working capital of Tk.2,000 will be required for the duration of the project. T
17. Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to Systems A and B. System A requires an up-front cost of $100,000, after which it generates positive after-tax cash flows of $60,000 at the end of each of the next 2 years. The system could be replaced every 2 years, and the
Need assistance with the following question. Need an explanation of corporate risk mitigation techniques used in capital budgeting. Thanks
Dungan Corporation is evaluating a proposal to purchase a new drill press to replace a less efficient machine presently in use. THe cost of the new equipment at time 0, including delivery and installation, is $200,000. If it is purchased, Dunagn will incur costs of $5,000 to remove the present equipment and revamp its facilities
If anyone can offer any type of significant help to me, or better yet get me on the right track, I would greatly appreciate it! I've enclosed my problem down below and additional details are in the excel document. I'm having a hard time distinguishing what is meant by internal funds and if the numbers I'm obtaining are corre
Martinez Company has money available for investment and is considering two projects each costing $70,000. Each project has a useful life of 3 years and no salvage value. The investment cash flows follow: Project A Project B Year 1 $ 8,000 $28,000 Year 2 24,000 28,000 Year 3 52,000 28,000 Instructions If 8% is an accept
You've been hired fresh off your Augsburg MBA as a financial consultant to the Mayo Clinic (MC), a new, for-profit, publicly traded firm that is the market leader in kidney dialysis systems (KDSs). The company is looking at setting up a manufacturing plant overseas to produce a new line of KDSs. This will be a five year project.
Raphael Restaurant is considering the purchase of a $10,000 souffle maker. the souffle maker has an economic life of 5 years and will be fully depreciated by the straight-line method. The machine will produce 2000 souffles per year, with each costing $2 to make and priced at $5. Using excel, assume that the discount rate is 1
Your division is considering two projects with the following net cash flow (in millions): Year 0 Year 1 Year 2 Year 3 Project A -$25 $5 $10 $17 Project B -$20
Below is the 2004 year-end balance sheet for Banner, Inc. Sales for 2004 were $1,600,000 and are expected to be $2,000,000 during 2005. In addition, we know that Banner plans to pay $90,000 in 2005 dividends and expects projected net income of 4% of sales. (For consistency with the Answer selections provided, round your forecast
Which of the following statements is most correct? a. If new debt is used to refund old debt, the correct discount rate to use in discounting cash flows is the before-tax cost of new debt. b. The key benefit associated with refunding debt is the reduction in the firm's debt ratio and creation of reserve borrowing capacity
Compare two alternatives for equipment purchases using capital budgeting techniques. To be honest, I don't even know where to start with this problem and would appreciate any help that you feel is allowed. At least something that could get me started and allow me to check my work when finished. Thank you for your help.
INPUT OUT PUT 55000 Current salary Current job Calculate and show formulas 40 Years until retirement After Income 0.03 Salary increase 0.26 Tax rate Present value of salary Wilton Wilton MBA 65000 Tuition per year PV of tuition & expenses 2500 Books & Supplies 100000 St
1. In your own words, explain the concept of cost of capital. How may cost of capital affect long-term financial decisions? Would a company prefer to have a high or low cost of capital? Why? What was the effect of cost of capital on long-term financial decisions for your company? 2. Why is capital budgeting part of a compan
The Net Present Value of a Stream of Cash Flow 11. You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1500 two years from now, and $10,000 ten years from now. a) What is the NPV of the opportunity if the interest rate is 6% per year? Should you