Your firm has an opportunity to male an investment of $50,000. Its cost of capital is 12%. It expects after-tax cash flows (including the tax shield from depreciation) for the next 5 years to be as follows: Year 1 $10,000. Year 2 20,000. Year 3 30,000. Year 4 20,000. Year 5 5,000. I. Calculat
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
Brain mass Inc currently has sales of $1,000,000, and its days sales outstanding is 30 days. The financial manager estimates that offering longer credit terms would (1) increase the days sales outstanding to 50 days and (2) increase sales to $1,200,000. However, bad debt losses, which were 2 percent on the old sales, would amoun
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
If the government balanced the budget annually, would that force the government to enact a contractionary fiscal policy when hit with a severe recession? What problems might arise with an annually balanced budget?
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)
Sunshine Corporation is considering several long-term investments. Management wants to accept the two best projects, given the following data: Project A B C D E Present value of net cash inflows . . . . . . . . $24,000 $44,000 $15,000 $30,000 $50,000 Investment cost . . . . . . . . . . 20,000 40,000 16,000 24,000 41,000 R
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
A government budget deficit is financed by a combination of (a) saving rising relative to domestic investment and imports rising relative to exports. (b) saving rising relative to domestic investments and exports rising relative to imports. (c) domestic investment rising relative to saving and imports rising relative to expor
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?
Please show the formulas. Find the Weighted Average Cost of Capital (WACC) of G&W Oil Company. G&W's capital structure is 35% debt paying an 8% interest rate and 65% equity. Investors require a rate of 17% return on G&W's equity. The corporate tax rate is 35%.
Assume a firm has earnings before depreciation and taxes of $500,000 and no depreciation. It is in a 40 percent tax bracket. A. Compute its cash flow B. Assume it has $500,000 in depreciation. Recompute its cash flow. C. How large a cash flow benefit did the depreciation provide?
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 know that the multiplier is 1/(1-MPC), but I am not certain about the MPM. Given MPC = 0.80 and Marginal Propensity to Import (MPM) = 0.5, calculate the impact of: (a) If the Government decides to increase its purchases of goods and services by $100 billion , what would be the increase in aggregate spending? (b) T
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,
8. Mr. Lee operates a green grocery in a building he owns in one of the outer boroughs of New York City. Recently, a large chemical firm offered him a position as a senior engineer designing plants for its Asian operations. (Mr. Lee has a master's degree in chemical engineering). His salary plus benefits would be $95,000 per yea
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
Prepare a list of costs for a network/communications company. List all possible costs and indicate if it's variable or fixed. If it is a variable cost, indicate if it can be controlled within three month's time, and how this is accomplished.
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.
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
Company ABC has a before tax cost of debt of 12% and a before tax cost of equity of 20%. 30% of the company is finances with debt and 70 % is financed with equity. Tax rate is 35%. What is the weighted average cost of capital?
Can someone please describe the following project evaluation processes for me: Payback, NPV, PI, IRR. Is any one evaluation process better the others? Why?