Because of concern for the uncertainties of the CD reorder business, how would I provide analyses supporting whether or not your recommendations would change? Notes: if testaments of projected cash revenue were reduced by 10%. If the "buffer margin" or tripled from 2.5% to 7.5% OCambridge Business Publishers4. Income taxes: New Haven has an overall income tax rate of 30%.Income taxes: New Haven has an overall income tax rate of 30%.Chapter 12 Capital Budgeting 5175. Treasurer's analysis:Average cost of capital(8% + 9% + 10%)/3 = 9%Total cash revenue.Total cash expenses.$2,030,000Total amortization.$740,000Total operating expenses .720,000Projected net income over five years.1,460,000$ 570,000$ 114,000$ 443,420720,000Average annual income . ...Present value of future returns.Required investment. . ..Negative net present value. .$(276,580)Recommendation: Reject investment because of insufficient net present value.RequiredReview the treasurer's analysis, identifying any questionable aspects and briefly comment ona.the apparent effect of each such item on the treasurer's analysis.b. Prepare your own analysis of the investment, including a calculation of the proper cost ofcapital and hurdle rates, a net present value analysis of the project, and a brief recommenda-tion to Decker regarding the investment (round amounts to nearest dollar).asked you to provide analyses supporting whether or not your recommendation would change1. If estimates of projected cash revenue were reduced by 10%.C.Because of his concern for the uncertainties of the CD recorder business, Decker also has2. If the "buffer margin" were tripled from 2.5% to 7.5%.f General Company's cutting department, which N 34 512-1. Business New an opportunityinvolving the purchase of a patent that will the to its line of CD recorders.The purchase price is and the legal it will for five moreNew has to the that theinvestment be Brad of the it diffi-posal.OUR KNOWLEDGENew Haven's treasurer has recommended to the company s capital budgeting committee cioW,investment be rejected. Brad Decker, chairperson of the capital budgeting committee. findeat theThe patent's purchase price is $720,000 and the legal protection it provides will last recordersFor this reason, he has retained you to review the treasurer s analysis and recommendation tve.are provided with the following data and summary of the treasurer's analysis:1. Required investment: $720,000 cash for the patent to be amortized on a straight-line basiefive-year useful life, with a zero salvage value.2. Projected cash revenue and operating expenses:YearCash RevenueCash Expenses$ 620,000$240,000000'099000'00,000'000250,000200,000000'08$2,030,000$740,0003. Source of capital: New Haven plans to raise 10% of the needed capital by issuing bonds, 500by issuing stock, and the balance from retained earnings. For these sources, the capital costrates are 8%, 9%, and 10%, respectively. New Haven has a policy of seeking a return cquncertainties involved.

Net Present Value=(Present Value of Cash Inflows-Present Value of Cash Outflows)

Because of concern for the uncertainties of the CD reorder business, how would I provide analyses supporting whether or not your recommendations would change? Notes: if testaments of projected cash revenue were reduced by 10%. If the "buffer margin" or tripled from 2.5% to 7.5%

Because of concern for the uncertainties of the CD reorder business, how would I provide analyses supporting whether or not your recommendations would change? Notes: if testaments of projected cash revenue were reduced by 10%. If the "buffer margin" or tripled from 2.5% to 7.5%

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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