Q: If cashflows are discounted @ the net present value is zero. O a. RATE OF BORROWING…
A: Capital budgeting is the process by which a corporation examines potential large projects or…
Q: What is Internal Rate of Return - Variable Cash Flows with Reversion? Please provide examples.
A: The internal rate of return is the one of the discounted techniques of capital budgeting which is…
Q: _______ is a measure of risk while _______ is a measure of risk and liquidity.
A: Capital budgeting is the process of distributing the resources(finance) of the organization in…
Q: the discount rate that equates the present value of the cash inflows with the present value of the…
A: In capital budgeting decisions calculate net present value is very important.
Q: Define the term reinvestment rate and describe how it differs for any cash flow series between (1) a…
A: Answer: Rate of return is nothing but the interest rate paid on the outstanding balance of money…
Q: Which one of the following statements is correct? A. If a firm decreases its inventory…
A: Inventory period is based on how much inventory on average you keep on hand and receivable period is…
Q: 3. When there is more than one sign change in the net cash flow of a rate of return equation, the…
A: Cash flow streams are the net cash inflows and outflows of an organizations, for any project. A cash…
Q: The risk-return trade-off from investing in current assets refers to an increased risk of: a.…
A: Explanation:- The risk-reward difference is an exchange concept that connects large risk and large…
Q: Which of the following situation is better for the company? O a. All of these O b. Cash conversion…
A: The cash conversion cycle (CCC) is the days of inventory plus the days of receivable less the days…
Q: Explain price/cash flow ratio
A: Answer: Price to cash flow is determined through the division of price per share by cash flow per…
Q: Drw a Cash flow diagram for comparing cost-only?
A: Initial costs The occurrence of cost at the time of design and the construction of the project.…
Q: An investment is guaranteed to have a unique value of IRR if which of the following is true? a.…
A: Given: The unique IRR value in the investment.
Q: Payback method is Select one: a. None of the options b. Yield on investment c. PV of cash inflow- PV…
A: Payback method is one of the capital budgeting technique which helps in evaluating profitability of…
Q: It is better to use Free Cash Flow to Firm rather than Free Cash Flow to Equity when the leverage is…
A: The free cash flow is the amount of money remaining by adding the non cash expenses of the company.…
Q: The net present value: is equal to the initial investment when the internal rate of return is equal…
A: The net present value is determined by, The Net present value (NPV) is defined as the difference…
Q: All of the following statements regarding NPV are true EXCEPT: a. A positive NPV indicates the…
A: Net Present Value : It is the net of present value of cash inflow and present value of outflow.…
Q: An increase in the discount rate will______ O a. Reduce the present value of future cash…
A: This question can be solved with the help of 2 examples. Example 1 Initial investment=15000 Discount…
Q: Unfavorable leverage means Return of equity more than return of loan cost Return of equity less than…
A: Unfavourable leverage occurs when the firm does not earn the funds cost(i.e. loan cost).
Q: Which of the following decisions do NOT influence the cash from operating activities slide? Which…
A: Operating Activities are company core business activities such as manufacturing , distributing ,…
Q: A debt ratio sufficiently close to D/A* to where the value of the firm is not much lower than at the…
A: A debt ratio is a financial ratio that measures the indebtedness of a company. It is the ratio of…
Q: 7) An investment has a net cash flow (ao, a1, az, as, and a.) with ao, a,, az negative, a, > 0, and…
A: (7). The given investment is a case of unconventional cash flows wherein there are more than one…
Q: The receivales turnover ratio is used to analyze profitability. liquidity. risk a. b. С. nventors d.…
A: Receivable Turnover Ratio = Net Credit Sales / Average Receivable
Q: Q.The probability of financial distress a- Increases when the firm's debt to value ratio increases…
A: Financial Distress: The condition which arises due to incapacity of the company to generate enough…
Q: Lower financial leverage is related to the use of additional O a. Debt financing O…
A: Financial leverage refers to the amount of money borrowed by a company to finance its assets and new…
Q: The tendency of the return on stockholders' equity to vary disproportionately from the return on…
A: The return on stockholders' equity refers to the amount given to the shareholders from the total…
Q: he firm has adequate cash to pay bills
A: The stakeholders of the entity evaluate the financials of the company in many possible ways.…
Q: Choose the INCORRECT one among the following statements a) Increase in the working capital turnover…
A: Ratio analysis means where different ratio of various years of years companies has been compared and…
Q: To find NPV, it requires
A: NPV or net present value technique is used to determine the present value of all future cash flows.…
Q: disadvantages
A: Meaning of Discounted Cashflow Analysis Discounted cash flow (DCF) is a valuation method used to…
Q: Practice : a: The computation of return on average investment ignores one characteristic of the…
A: Capital budgeting refers to the technique of evaluating a project for investing in it. It has…
Q: Consider the calculation of an external rate of return (ERR). The positive cash flows in the cash…
A: External rate of return is the return rate which is expected to be generated from the project. If…
Q: management
A: Working capital management is a strategy that is used by the company in order to ensure efficiency…
Q: The internal rate of return (IRR) can best be described as: A. the discount rate at which a set of…
A: It is one of capital budgeting discounting techniques which is used as a metric in financial…
Q: The rate of return that equates the present value of cash inflows and outflows is the: A. hurdle…
A: Introduction: Capital budgeting is an investment criterion or decision making mechanism for…
Q: Whenever the percentage change in EBIT due to percentage change in sales is lower than the…
A: Operating Leverage defined as “firms ability to use fixed operating costs to magnify effect of…
Q: If cashflows are discounted at____ the net present value is zero a. Internal rate of return…
A: Capital Budgeting entails long-term planning and monitoring of capital expenditures, as well as a…
Q: . Leverage involves using fixed costs to magnify the potential return to a firm. Explain the hedging…
A: Answer:- Leverage meaning:- Leverage is one of the investing technique that generally involves…
Q: Operating Cash Flow (OCF) is equal to what?
A: Operating cash flow (OCF) is the cash flow derived from the operating activities. It excludes the…
Q: 3. When there is more than one sign change in the net cash flow of a rate of return equation, the…
A: Based on the pattern of the cash flows, the cash flows can be classified as a conventional cash flow…
Q: How is payback calculated with unequal net cash inflows?
A:
Q: The discounted payback method discounts cash flows at the opportunity cost of capital and then…
A: Cost of capital denotes that cost which a firm is required to pay to finance the amount for the…
Q: f the following is false? a. Baumol model helps firm to find out their desirable level of cash…
A: Account payable are the amount of money to be given to the suppliers and creditors who provides…
Q: Unfavorable leverage means Return of equity more than return of loan cost Return of equity less than…
A: Unfavorable leverage occurs when the firm does not earn as the loan cost.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
- Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
- You are considering a new product launch. The project will cost $1,675,000, have a four- year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16,300, variable cost per unit will be $9,400, and fixed costs will be $550,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 21 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What is the NPV for the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your NPV answers to 2 decimal places, e.g., 32.16. Round your other answers to the nearest whole number, e.g. 32.) Scenario Unit Sales Variable Cost Fixed Costs NPV Base 195 $ 9,400 $…You are considering a new product launch. The project will cost $1,675,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16,300, variable cost per unit will be $9,400, and fixed costs will be $550,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 21 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What is the NPV for the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your NPV answers to 2 decimal places, e.g., 32.16. Round your other answers to the nearest whole number, e.g. 32.) b. Evaluate the sensitivity of your base-case…You are considering a new product launch. The project will cost $2,350,000, have a fouryear life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 330 units per year; price per unit will be $19,600, variable cost per unit will be $14,000, and fixed costs will be $720,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 21 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within +-10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your NPV answers to 2 decimal places, e.g., 32.16. Round your other answers to the nearest whole number, e.g. 32.) \table[[Scenario,Unit Sales,Variable Cost,Fixed…
- You are considering a new product launch. The project will cost $750,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 440 units per year; price per unit will be $17,700, variable cost per unit will be $14,400, and fixed costs will be $725,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 23 percent. a. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections?You are considering a new product launch. The project will cost $960,000, have a 5-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 350 units per year; price per unit will be $15,955, variable cost per unit will be $12,000, and fixed costs will be $625,000 per year. The required return on the project is 10 percent, and the relevant tax rate is 23 percent. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within +10 percent. a. What are the best-case and worst-case NPVs with these projections? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. What is the base-case NPV? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. What is the sensitivity of your base-case NPV to changes in fixed costs? Note: A…You are considering a new product launch. The project will cost $1.675 million, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 195 units per year; price per unit will be $16,300; variable cost per unit will be $9,400; and fixed costs will be $550,000 per year. The required return on the project is 12 percent and the relevant tax rate is 21 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be Indicated by a minus sign. Do not round Intermediate calculations and round your NPV answers to 2 decimal places, e.g., 32.16.) Scenario Upper bound Lower bound Unit sales 214 175 units Variable cost per unit $ 10,340 $ 8,480 Fixed costs $ 605,000 $ 495,000 Scenario…
- You are considering a new product launch. The project will cost $900,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 560 units per year; price per unit will be $19,200, variable cost per unit will be $15,900, and fixed costs will be $950,000 per year. The required return on the project is 12 percent, and the relevant tax rate is 23 percent. a. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your NPV answers to 2 decimal places, e.g., 32.16.) Scenario Unit sales Variable cost per unit Fixed costs Scenario Base-case Best-case Worst-case Upper bound NPV Lower bound unitsYou are considering a new product launch. The project will cost $2,050,000, have a four-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 170 units per year; price per unit will be $26,000, variable cost per unit will be $16,000, and fixed costs will be $560,000 per year. The required return on the project is 15 percent, and the relevant tax rate is 23 percent. a-1. The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) a-2. What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g.,…You are considering a new product launch. The project will cost $2,050,000, have a 4-year life, and have no salvage value, depreciation is straight-line to 0. Salles are projected at 170 units per year. price per unit will be $26,000; variable cost per unit will be $17,000; and fixed costs will be $520,000 per year. The required retur on the project is 15%, and the relevant tax rate is 35% a. Based on your experience, you think the unit salles, variable cost, and fixed cost projections given here are probably accurate to within 10%. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (Negative answers should be indicated by a minus sign. Do not round intermediate calculations. Round the Final NPV answers to 2 decimal places. Omit $ sign in your response) Scenario Base Best MOESC Chit Sales Variable Cost units $ S $ Fixed Costs $ S S S b. Evaluate the sensitivity of your base-case NPV to changes in fixed…