Chapter 2 Practice Problems - ALL

Subject: accounting

Homework i 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. Complete this question by entering your answers in the tabs below. Required A 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? FI Compute the net present value of each project. Potential Projects Project A Present value of net cash flows Initial investment Net present value 2 Required B W F2 # Required C 3 APR 11 80 F3 $ 4 m tv 6 Project A $ 9,972 (10,000) 2 of 8 c F6 # & 7 Project B $ 10,697 (10,000) F7 Next > Y U il A 8 Project C $ 10,653 (10,000) FB DD ( F9 9 FU O

The managers in a firm have decided to move the company's headquarters from a rented space to a new building that the company will purchase. This is an example of Multiple Choice a cash flow decision. a capital budgeting decision. a net working capital decision. a capital structure decision. a short-term financing decision.

Question 1 (at home, to practice) You have been asked by Transport for London Ltd. to design a new and more efficient component for the signaling system of the London Underground. The engineers and other experts you consulted have come up with four possible projects for its production. All costs and revenues for the two possibilities are represented by the patterns of after-tax cash flows as follow (assume no uncertainty): Projects Initial investment Cash flow Cash flow Cash flow Cash flow Cash flow Year A. B. 012345 A Air wir Nó -9 2 2.5 3.5 4 B 9453 -9 3.5 2.5 C -9 ن من من من من 3 3 3 D -9 0.7 0.7 0.7 0.7 forever For all projects, the appropriate cost of capital is 6%. Calculate the Net Present Value for each project using the most appropriate formulae. [Practice using Excel for your calculations, although of course for the exam you will not have Excel!]. Which project would you choose and why? Project D seems the best project because it generates positive cash flows forever. Do your…

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…

B. True or False  When evaluating a project in which a firm might invest, the size but not the timing of the cash flows is important. Capital structure determines the level of current assets that is required to maintain the firm's operational level. Determining when a supplier should be paid is a capital structure decision. Determining the amount of money to borrow in order to finance a 10-year project is a capital structure decision. Deciding if a new project should be accepted is a working capital decision.

NO1.1 Capital budgeting is the process that a business uses to determine which proposed fixed asset purchases (or projects) it should accept, and which should be declined. This process is used to create a quantitative view of each proposed fixed asset investment, thereby giving a rational basis for making a judgment. Analyze why, despite employing various investment appraisal techniques, large investment projects in big corporations may fail to deliver their estimated cash flows. Critically assess how a failed capital project may affect key stakeholders and shareholder value, and also shape the future strategy of investment capital

How can I answer questions 1-2 and How can I explain if this a good project for the business to accept and why

Task 2B:   Critically evaluate the hey benefits and limitations of each of the differing investment appraisal techniques, supporting this response with relevant academic research as to whether each of the differing techniques is applied in practice within a real-life business context. Unilever PLC planning to meet the environmental protection strategy including an introduction of the UN approved 120-litre plastic open-top drums, known as the ‘Blue-drum’. It was highlighted in 2022 AGM that Comfort’ one of their products delivered high growth in Latin America, South Asia, and Turkey, but declined in Europe where consumers reduced their spending in the category. Hence, the company is trying to reduce cost in producing plastic containers used for this washing detergent product, ‘Comfort’.   Assume that cost of manufacturing a ten-pack of Blue-drum includes direct material at C19, direct labour is 111 and variable overheads at f3. The depreciation of a special equipment is C7 with no…

Problem #2 - Chapter 13 – Preference Ranking for Investment Projects The management of Revco Products is exploring four different investment opportunities, Information on the four projects under study follows: Project C (450,000) 522,970 72,970 Project B (360,000) 433,400 73,400 Project A Description Investment Required ($) Present value of Cash Inflows ($) Net Present Value ($) Life of the Project (in years) Project D (270,000) 336,140 66,140 (480,000) 567,270 87,270 6 3 12 6 Internal Rate of Return (%) 18% 19% 14% 16% Because the company's required rate of return is 10%, a 10% discount rate has been used in the present value computations above. Limited funds are available for the investment, so the company cannot accept all the available projects. 1) Compute the project profitability index for each investment project. 2) Rank the four projects according to preference in terms of the following metrics: Net Present Value b. Project Profitability Index Internal Rate of Return a. c. 3)…

The following table contains information about four projects in which Reynolds Corporation has the opportunity to invest. This information is based on estimates that different managers have prepared about their potential project. (Click the icon to view the projects information.) Requirements 1. Rank the four projects in order of preference by using the a. net present value. d. payback period. b. project profitability index. e. accounting rate of return. c. internal rate of return. 2. Which method(s) do you think is best for evaluating capital investment projects in general? Why? Data table Requirement 1. Rank the projects in order of preference. (a) (b) Net Present Profitability Value Index (c) Internal Rate of Return (d) Payback Period (e) Net Internal Payback Accounting Accounting of Retur 5 Investment Present Life of Rate of Profitability Period in Project Required Value Project Return Project A $205,000 $ 61,770 Rate of Index Years Return 24% 1.30 2.77 19% 1st preferred Project B…

27 Which of the following should be included in the cash flow projections for a new product? I. Money already spent for research and development of the new product II. Capital expenditures for equipment to produce the new product II. Increase in working capital needed to finance sales of the new product V. Interest expense on the loan used to finance the new product launch Multiple Choice II and III only II and IV only I, II, and III only II, III, and IV only I, II, III, and IV None of the options are correct.

Calculations to determine which – if any – additional investment opportunities should be undertaken. 1. If the projects are divisible 2. If the projects are not divisible .

Question 3 A firm is looking to evaluate the income coming from a project. The project has alowest possible income of $1,036.31, a likely income of $2,113.29 and a maximum income of $2,904.68. What is a the risk mitigated income that a firm should use their analysis? Enter your answer below (no $ sign), and show your work in your drobox submission. Your Answer:

What is the correct option? General accounting question

Which of the following would be most likely be included as part of free cash flows? The lost revenue that could have been used if a warehouse was leased out The cost of an already completed marketing study The interest that will be paid to debt holders to finance the project The salary paid to the firm's CEO To UN 스용 515