Quiz 1

Question 1 (a) Explain how the Fisher separation theory shows that, under certain conditions, shareholders can delegate to managers the task of choosing which physical investment projects to undertake. What specific conditions must hold for this to be true? (b) PJP, an industrial manufacturer, is considering a new capital investment project to make and produce and sell a new type of electrical generator. The first stage of the project requires an investment of $8,000 now for the initial design and market research. There is a 40% probability that this phase will be successful. If it is not successful (probability 60%), the project will be abandoned with zero salvage value. If the first stage is successful, a further investment of $300,000 will be required one year from now to make and test prototype generators. If this second stage is not successful (probability 55%), the prototypes could be sold for $40,000. If it is successful (probability 45%), PJP would go ahead and produce the…

Subject: accounting

(7.1) Which of the following cash flows is NOT a free cash flow associated with a project? Select one: a. The costs of buying land in another state to allow expansion of operations to that state. b. The cost of transporting machinery to another state to allow expansion of operations to that state. c. Underwriting costs resulting from the issue of new shares to raise the capital needed to expand operations interstate. d. Relocations costs paid to existing employees as a result of the decision to expand interstate. Clear my choice

Kindly solve the last three questions: iv, v, vi only

managerial accounting question.

Answer is B  Thanks

2. Current asset financing policies How do firms finance their operating current assets? A firm's asset or capital requirements grow over time and usually exhibit temporal (seasonal) variation. Firms must solve the challenge of how to finance their assets with a combination of short- and long-term financing. The following graph exhibits this relationship for a particular firm. DOLLARS Long-term Financing Asset Requirements TIME Which of the following best characterizes this firm's policy of financing assets? Restricted policy Relaxed policy Moderate policy Note the shaded region on the preceding graph. Which of the following statements best describes the firm's situation during this time? The firm has excess capital to invest in cash or marketable securities. The firm must rely on short-term borrowing. The impact of working capital management on return on equity return on equity. Considering all else remains constant, if a firm is using a restricted policy of financing assets, it will…

O Δ You work for a construction company that is considering a bid on a project to modernize the power grid in a country that is recovering from an earthquake. The cost to prepare the documentation that is necessary to submit the bid is $50,000. If a bid is submitted, you estimate that the project will be awarded with probability 0.5. The company's profit depends on the political situation prevalent in the country at the time of the project. Based on your experience, you conclude that with probability 0.2, the country would present favorable conditions and that the company would earn $240,000; with probability 0.7, the country would present stable conditions and the company would earn $140,000; and that with probability 0.1, the country would present unstable conditions and the company would lose 560,000. a. Would you recommend that the company bid on the project? b. Before your company bids on the project, what is the maximum amount you would pay for a forecast of the political…

what is accounting rate of return for project B ?

Question 1 Grey Ltd has provided the following figures for two investment projects, only one of which may be chosen. Project X Project Y £ _ Initial outlay 200,000 180,000 Profit for year 1 65,000 35,000 2 65,000 35,000 3 75,000 65,000 4 35,000 85,000 Estimated resale value at end of year 4 60,000 40,000 Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%. Required a) Calculate for each project i. Payback Average Return on Capital Employed Net present value (NPV) ii. iii. b) Critically discuss the merits and limitations of payback and NPV (Your answer is to be presented in an essay format NOT Bullet Points)

How do I answer (b) ?

Accurate Blasting Corporation (ABC), a company with profitable ongoing operations, is considering a major project on which the company has already incurred $850,000 in research and development costs. The vice-president in charge of finance has provided you with the following data and worksheet and asked you to determine, using an NPV analysis, if the project should be undertaken. She has also hinted your future with the company hinges on a successful analysis of the project. Data Sheet: Company's tax rate = 40% Company's opportunity cost of capital = 15% Net working capital requirements of the project if it is accepted: Year 0 $150,000 Year 1 $250,000 Year 2 $250,000 Year 3 $250,000 Year 4 $250,000 Year 5 $0 New specialized equipment purchases required for the project total $12,000,000. At the end of the project, it is expected that the equipment can be sold to a competitor for $900,000. This equipment will be depreciated using a 10-year depreciation schedule. During each year of the…

Sagar