Capital rationing and mutually exclusive investments (Excel) 19 Oliver Stone and Rock Company uses a process of capital rationing in its decision making. The firm's cost of capital is 12 percent. It will invest only $80,000 this year. It has determined the internal rate of return for ea
A local politician wants to increase taxes without hurting low-income members of the community. He is proposing a tax on landscaping services since richer people are more likely to hire a landscaper than poorer people. Is this proposal likely to succeed? Please explain your response.
East Lansing Appliances (ELA) expects to have sales this year of $15 million under its current credit policy. The present terms are net 30; the days sales outstanding (DSO) is 60 days; and bad debt loss percentage is 5 percent. Since ELA wants to improve its profitability, the treasurer has proposed that the credit period be sho
1. Which of the following statements is most correct? a. If a projects internal rate of return (IRR) exceeds the cost of capital, then the project?s net present value (NPV) must be positive. b. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. c. The IRR calculation implicitly as
1. In this election year, issues of campaign finance and political strategy are prominent. Suppose that you are in charge of a campaign to win a party's nomination. You can spend money on a variety of methods for trying to increase your candidates vote. These include (a) door to door visits, (b) direct mail, (c) network televisi
Impose a progressive tax such that the tax rate is 0 percent when GDP is $100, 5 percent at $200, 10 percent at $300, 15 percent at $400 and so forth. Determine and graph the new consumption schedule, noting the effect of this tax system on the MPC and the multiplier. GDP (billions)....................Consumption (billions)
Unifying Concepts: Capital Rationing Using the Payback and Net Present Value Methods Dino Corporation is trying to decide which of five investment opportunities it should undertake. The company's cost of capital is 16%. Owing to a cash shortage, the company has a policy that it will not undertake any investment unless it has
Given the following information, DESCRIBE the budget line for the consumer: Be sure to state what the axes are and provide numbers for the vertical and horizontal intercepts. Also what is the slope of the line? Explain what the budget line represents. Income =$1000/ month Price of 1 pound of steak = $4.00 Price of 1 pound
1) Simpson corporation is considering a proposed expansion to its facilities. Which of the following statements is most correct? a. In calculating the project's operating cash flows, the firm should not subtract out financing costs such as interest expense, since these costs are already included in the WACC, which is
1) Thompson corp has proposed project with normal cash flows. In other words, there is an up-front cost followed over time by a series of positive cash flows. The projects internal rate of return is 12 percent and its WACC is 10 percent. Which of the following statements is most correct? a. The projects NPV is positive
If a firm uses external financing as a plug item, has a new capital budget of $3 million, a net income of $4 million, and a plowback ratio of 35%, how much should be raised in external funds?
Parker Products manufactures a variety of household products. The company is considering introducing a new detergent. The company's CFO has collected the following information about the proposed product. (Note: You may or may not need to use all of this information, use only the information that is relevant.) The project ha
You drive 5000 miles a year and buy gasoline at the price of $2/gal. Except for differences in annual costs, you are indifferent between driving a 10 year old Buick ($400/yr, 20 miles per gal) or a 10 year old Toyota ($800/yr, 50 miles per gal). (a) Which one do you choose to drive? The yearly expense on the Buick = 400
Job costing, normal and actual costing. Anderson Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours is the allocation base for assembly support costs. In December 2006, A
I have attached a study sheet with some basic calculations about expenditures and GDP as well as income. Just need some help figuring out the problems. 1. Consider the following hypothetical data for the US. Economy (in billions of dollars). Durable Goods Consumption $ 497 Nondurable Goods Consumption 1,
Why can the distinction between fixed costs and variable costs be made in the short run? Distinction between fixed costs and variable costs can be made in the short run because a change in degree can be made. Also, a firm's plant capacity is fixed in short run and can use its existing plant capacity more or les intensively in
A recent opinion poll shows the majority of respondents favor a flat tax of 20 percent on all income, subject to a $35,000 exemption. (The first $35,000 of income would be untaxed.) An independent politician adopts this flat-tax proposal. His opponent is a Democrat who favors increasing the top marginal tax rate to 42 percent.
Corporate Finance: Capital Structure, Modigliani-Miller Proposition, NPV, Working Capital, Accelerated Depreciation, corporate bankruptcies, LBO, currencies
1) You're trying to figure out why the chairman of the Board of Directors fired you as CEO of a small corporation. You never missed an interest payment and the firm had a cash ratio of 2, the highest of any firm in their peer group. Because of this financial safety net, the firm's debt was considered very safe by industry stan
Can someone please describe the following project evaluation processes for me: Payback, NPV, PI, IRR. Is any one evaluation process better the others? Why?
Accounting - Relevant cash flows/NPO Terminal Value. See attached file for full problem description. ABC Company is considering replacing an existing hoist with one of the two newer more efficient pieces of equipment. The existing hosit is three years old, cost is $32,000 and is being depreciated under MACRS using a
Howard is deciding if he should pursue a restricted or relaxed current asset investment policy. His annual sales are $200,000; its fixed assets are $50,000; debt and equity are each 50 percent of total assets. EBIT is $18,000, the interest rate on the firm's debt is 05 percent, and his company's tax rate is 20 percent. With a restricted policy, current assets will be 7.5 percent of sales. Under a relaxed policy, current assets will be 12.5 percent of sales. What is the difference in the projected ROEs between the restricted and relaxed policies?
Howard is deciding if he should pursue a restricted or relaxed current asset investment policy. His annual sales are $200,000; its fixed assets are $50,000; debt and equity are each 50 percent of total assets. EBIT is $18,000, the interest rate on the firm's debt is 05 percent, and his company's tax rate is 20 percent. With a re
1. Do you think GM or Ford could have been more on top of market trends? How much is just foreign competition and how much is just bad management? Also, how much of it is government policy? Foreign producers do not pay health costs--over $1000 per US made vehicle--because foreign government fund health care, not the industry, fo
A farmer's payoff matrix per plot is: Good Rain Year Bad Rain Year Coffee 140 27 Corn 64 50 Probability 1/4 3/4 Assume that the farmer has no access to insurance a
Suppose that you are economic adviser to President Bush, "propose two actions that the administration should take if the budget is in surplus that will protect the surplus. Propose two actions if the budget is in deficit to bring it out of deficit. What would be the impact on the U.S. economy for each of your recommendations?"
A consumer buys good X and good Y(composite good). Price of X is 1 and Price of Y is 0.1. Total budget for X and Y is 2. Show graphically the effect of a buy one get one free promo for X. Include explanation.
In 1999, the Congressional Budget Office projected forecasts of the budget surplus to be somewhere between 2 and 3 percent of GDP in the next ten years. Now, the economy has entered a recession, and the government has pledged to flight a prolonged war on terrorism. How is the forecast likely to change?
For furniture business, or your work group, prepare a list of all possible costs. For each, indicate if it is fixed or variable. If it is variable, indicate if it can be controlled within three months time. Does this firm have full control of its selling price, partial control, or must it accept the price that already exists in
Is it realistic to separate costs into fixed and variable components? Can it be done realistically? Can computer analyses do an easier job?
1. If X is a normal good, then a fall in price must lead to a rise in consumption, but if X is an inferior good then a fall in price may lead to a rise in consumption. Answer TRUE or FALSE and justify your answer in terms of income and substitution effects. 2. Suppose that George's utility function is given by u(w) = 1000w -
Given the following information, complete the cash budget: a. Collections occur one month after the sale b. January's credit sales were $80,000 c. The firm has a certificate of deposit for $40,000 that matures in April e. The monthly mortgage payment is $25,000 f. Monthly depreciation