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Cost of Capital

2) Your firm has an opportunity to make an investment of $50,000. Its cost of capital (interest rate) is 12 percent. 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 2

The term "capital budgeting" refers to decisions

The term "capital budgeting" refers to decisions a. which are made in the short run. b. which concern the spreading of expenditures over a period lasting less than one year. c. where expenditures and receipts for a particular undertaking will continue over a relatively long period of time. d. where a

Operating Cash Flow - Eisenhower Communications

Eisenhower Communications is trying to estimate the first-year operating cash flow (at T=1) for a proposed project. The financial staff has collected the following information: Sales revenues $10 million Operating costs (excluding depreciation) 7 million Depreciation 2 million Interest expense 2 million

Unfunded Mandates

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Capital budgeting criteria

A mining company is considering a new project. It has received a permit, so the mine would be legal, but it would cause significant harm to a nearby river, The firm could spend an additional $10 million at year 0 to mitigate the environmental problem, but it would not be required to do so. Developing the mine (without mitigation

Commonwealth of Mass

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Broomfield Company

Please see the attachment. Explain your answer briefly and clearly, showing any necessary calculations. Your answer should be in an Excel file. 2. Broomfield Company budgeted $6,000,000 of manufacturing overhead for the current year, and 50,000 hours of direct labor (cost of $60/hour). Production of Product X (100,

Microeconomics - Two supermarket chains plan to merge.

1.) Two supermarket chains plan to merge. An adviser has argued that the merger will bring no cost reduction because the marginal costs of both firms are similar. Is this reasoning correct? 2.) 90% of a firm's energy costs of £1m are fixed but not sunk. The variable cost of energy is £2 per unit and it is currently using 10

Project A and Project B

I need help with the following problems using the cash flow information for Project A and B. File also attached. Use the following project cash flow information for questions 23 through 27. Project A Project B Initial Investment 100,000 100,000 Year 1 40,000 10,000 Year 2 40,000 10,000 Year 3 40,000 75,000 Year 4

Social efficiency required to reduce pollution

Two firms are ordered by the federal government to reduce their pollution levels. Firm A's marginal costs associated with pollution reduction is MC=20+4Q and firm B's MC=10+8Q. The marginal benefit of pollution reduction is MB=400-4Q. Compare the social efficiency of three possible outcomes: require all firms to reduce pollut



Cash Budgeting

Medical Supplies, Inc., purchases first-aid items from large wholesalers. Medical Supplies then assembles and sells first-aid kits to businesses and contracts to maintain the first-aid kits. You have been asked to prepare a cash budget for January. The following information is provided: a. Cash in the bank on January 1 is $3

Economic Review Questions

1. Define the term microeconomics. 2. Define the term macroeconomics. 3. Define the abbreviation SEC and define what it does. 4. Define the abbreviation FDIC and define what it does. 5. Define the term laissez-faire in terms of economics. 6. Define GDP and explain what it is. 7.

Rising healthcare costs and medical malpractice

I need help with the reasons that healthcare costs in the U.S. is increasing and its link with litigation and medical practitioners. The statement listed below needs to be expanded on. "A big issue that divides the Democrats from the Republicans is whether it is a Gov't program vs. an Insurance program. It has to do with cos

Menendez Corporation Financial Calculations

The Menendez Corporation expects to have sales of $12 million. Costs other than depreciation are expected to be 75 percent of sales, and depreciation is expected to be $1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Menendez's federal-plus-state t

Find the Optimal Purchasing Plan using Integer Programming

1. Buying equipment. Oriental Airlines is considering a capital expansion in which it will purchase new aircraft for its Pacific runs. Oriental is looking at the purchase of Boeing B797s, Airbus A450s and Lockheed L120s. The budget for new purchases is $750 million. Boeing B797s cost $42 million, Airbus A450s cost $30 mill

Selecting Projects - Spreadsheets

1. Selecting Projects. The Texas Electronic Company (TEC) is contemplating a research and development program encompassing eight major projects. The company is constrained from embarking on all projects by the number of available scientists (40) and the budget available for projects ($3000,000). Following are the resources

Finance Questions

1. How much will you have in 10 years if you invest $100 a month starting today for 10 years at a rate of 7%? 2. What is the present value of $200,000 received at the end of every 6 months for the next 8 years at a discount rate of 7%? 3. How are the processes of discounting and compounding related? Explain.

Operating Cash Flows and Investment Outlay

The lemon juice would be produced in an unused building adjacent to Allied's Fort Myers plant; Allied owns the building, which is fully depreciated. The required equipment would cost $200,000, plus an additional $40,000 for shipping and installation. In addition, inventories would rise by $25,000, while accounts payable would go

Capital rationing and mutually exclusive investments

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.

Carrying receivables

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

Microeconomic Questions

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

Effects Of Imposing A Progressive Tax

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

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

Budget Line

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