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(Capital rationing) The Cowboy Hat Company of Stillwater, Oklahoma, is considering seven capital investment proposals for which the total funds available are limited to a maximum of $11 million. The projects are independent and have the costs and profitability indexes associated with them shown in the popup window: a. Under strict capital rationing, which projects should be selected? b. What problems are there with capital rationing? MCKEN a. Under strict capital rationing, which projects should be selected? (Select the best choice below.) OA. Projects C and F B. Projects D and G OC. Projects C and D OD. Projects D, F and OE. Projects C, D and G Data table (Click on the following icon in order to copy its contents into a spreadsheet.) PROFITABILITY INDEX COST $3,000,000 1.15 2,000,000 1.06 1.34 1.36 6,000,000 5,000,000 3,000,000 6,000,000 1.16 1.25 4,000,000 1.12 PROJECT A ABCDEFG C Bool 1 X Question Viewer

Q.Because the company’s cash is limited, Andrews thinks the payback method should be used to choose between the capital budgeting projects.a. Calculate the payback period for each of the three projects. Ignore income taxes. Using the payback method, which projects should Andrews choose?

Answer the given question with a proper explanation and step-by-step solution. Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 7%.     0 1 2 3 4                       Project A -1,000 600 440 210 260 Project B -1,000 200 375 360 710   What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places. ____ years What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. ______ years What is Project B's payback? Do not round intermediate…

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A company is considering three alternative investment projects with different net cash flows. The present value of net cash flows is calculated using Excel and the results follow. Potential Projects Present value of net cash flows (excluding initial investment) Initial investment Project A $ 11,226 (10,000) Project B $ 10,568 (10,000) a. Compute the net present value of each project. b. If the company accepts all positive net present value projects, which of these will it accept? c. If the company can choose only one project, which will it choose on the basis of net present value? Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the net present value of each project. Potential Projects Project A Project B Project C Present value of net cash flows Initial investment Net present value $ $ $

Consider two investment projects, which both require an upfront investment of $9 million, and both of which pay a constant positive amount each year for the next 9 years. Under what conditions can you rank these projects by comparing their IRRS? (Select the best choice below.) O A. There are no conditions under which you can use the IRR to rank projects. O B. Ranking by IRR will work in this case so long as the projects' cash flows do not decrease from year to year. O C. Ranking by IRR will work in this case so long as the projects' cash flows do not increase from year to year. O D. Ranking by IRR will work in this case so long as the projects have the same risk.

A company is considering a 10-year capital investment project. The project has annual positive cash flows each year. The accounting manager has calculated the NPV of the same project using three different costs of capital (8%, 10% and 18 %) as discount rates. Select the most logical combination of NPVS from the choices given. Note: You cannot calculate the NPVS nor do you need to. O $(5,743) $3,152 $6,612 O $(5,743) $6,612 $3,152 $3,152 $6,512 $(5,743) O $6,512 $3,152 $(5,743) O None of the above

A company wants to decide which project to undertake out of two projects A and B.  For this purpose, it wants to evaluate each project that have the same initial investment (cost) but different cash flows for the next three years. The following table gives information on these two projects. The discount rate to be used is 8 percent, which is the WACC for the company.  Use two methods of capital budgeting: The Net Present Value (NPV) Method and the Internal Rate of Return (IRR) Method, to evaluate and compare the two projects. Based on the outcome of calculations, choose the best project A or B and explain your decision for each method.  Show all your work for each method step by step.     Initial Investment and Cash Flows of Projects A and B in AED   Project A Project B Initial Investment - 150,000 - 150,000 Year 1 Cash flow 20,000 50,000 Year 2 Cash flow 90,000 90,000 Year 3 Cash flow 70,000 60,000

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Consider how Root Valley River Park Lodge could use capital budgeting to decide whether the $13,000,000 River Park Lodge expansion would be a good investment. Assume Root Valley's managers developed the following estimates concerning the expansion: (Click the icon to view the estimates.) (Click the icon to view additional information.) The internal rate of return (IRR) of the expansion is Data table More info example 10-12% Number of additional skiers per day Average number of days per year that weather conditions allow skiing at Root Valley Useful life of expansion (in years) Average cash spent by each skier per day Average variable cost of serving each skier per day Cost of expansion Discount rate Get more help. 12-14% Print 15-16% 16-18% S Done 122 skiers 149 days Assume that Root Valley uses the straight-line depreciation method and expects the lodge expansion to have no residual value at the end of its nine-year life. The project is expected to have an average annual net cash…

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Hi there, I am working on this problem, how do i solve it without using excel? CCM ltd. has a budget of $32 million dollars to spend on these investments (the table attached). Choose the best combination of investments using the profitability index. The cost of capital is 6%. Cash flow from investments are all per year in perpetuity.

Project: Evaluate the Capital Investment Scenario Shoals Corporation puts significant emphasis on cash flow when planning capital investments. The company chose its discount rate of 8 percent based on the rate of return it must pay its owners and creditors. Using that rate, Shoals Corporation then uses different methods to determine the most appropriate capital outlays. This year, Shoals Corporation is considering buying five new backhoes to replace the backhoes it now owns. The new backhoes are faster, cost less to run, provide for more accurate trench digging, have comfort features for the operators, and have 1-year maintenance agreements to go with them. The old backhoes are working just fine, but they do require considerable maintenance. The backhoe operators are very familiar with the old backhoes and would need to learn some new skills to use the new backhoes. The following information is available to use in deciding whether to purchase the new backhoes:   Old Backhoes…

Q.Because the company’s cash is limited, Andrews thinks the payback method should be used to choose between the capital budgeting projects.a. What are the benefits and limitations of using the payback method to choose between projects?

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7. Roberts and Company are considering investing in a project to streamline their production process. The cash flows are shown below. The required rate of return for projects of this class is 8%. 6. 10,000 35,000 25,000 10,000 Time 4 Cash flow -200,000 55,000 65,000 Use the NPV decision rule to evaluate this project; should it be accepted or rejected? Show your calculations for the NPV.

You are a financial analyst for the Vincenzo Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12%. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year                       Project X                              Project Y 0                              ($10,000)                            ($10,000) 1                             6,500                                     3,500 2                             3,000                                     3,500 3                             3,000                                     3,500 4                             1,000                                     3,500     Calculate each project’s payback period, net present value (NPV), internal rate of return (IRR), and modified internal rate of return (MIRR). Which project or projects should be accepted if they are…