EXERCISE 3: CASH INFLOWS AND CASH OUTFLOWS With the following capital budgeting elements, identify the cash outflows and cash inflows that you would use to judge the attractiveness of a project by using the time- value-of-money yardsticks: capital assets ($1.5 million), working capital in year 1 ($500,000) and year 2 ($200,000), salaries ($140,000), working capital loan ($190,000), residual value at the end of the 11th year ($1 million), profit for the years 1 to 10 ($300,000), mortgage ($1.1 million), non-cash expense ($50,000), revenue ($300,000). and sunk costs ($100,000). The project's lifespan is 10 years and the cost of capital is 8%.

EXERCISE 3: CASH INFLOWS AND CASH OUTFLOWS With the following capital budgeting elements, identify the cash outflows and cash inflows that you would use to judge the attractiveness of a project by using the time- value-of-money yardsticks: capital assets ($1.5 million), working capital in year 1 ($500,000) and year 2 ($200,000), salaries ($140,000), working capital loan ($190,000), residual value at the end of the 11th year ($1 million), profit for the years 1 to 10 ($300,000), mortgage ($1.1 million), non-cash expense ($50,000), revenue ($300,000). and sunk costs ($100,000). The project's lifespan is 10 years and the cost of capital is 8%.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Capital Budgeting Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 13% to evaluate projects such as these. Time Project A Cash Flows Project B Cash Flows 0 -$46,800 -$63,600 1 -21,600 20,400 2 43,200 20,400 3 43,200 20,400 4 43,200 20,400 5 -28,800 20,400 Calculate the payback period and discounted payback period for projects A & B.
3. A. B. C. time Capital Budgeting Project S Project L D. 0 -1000 -1000 1 500 100 2 400 200 3 300 300 4 200 400 5 100 500 USE NPV METHOD, assuming the WACC is 10%. Which project will you invest? Use IRR method, which project will you invest? Assuming WACC is 10%, use MIRR, which project will you invest? Use payback period method, which project will you invest?
8. Conclusions about capital budgeting The decision process Before making capital budgeting decisions, finance professionals often generate, review, analyze, select, and implement long-term investment proposals that meet firm-specific criteria and are consistent with the firm's strategic goals. Companies often use several methods to evaluate the project's cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply. The NPV shows how much value the company is creating for its shareholders. For most firms, the reinvestment rate assumption in the MIRR is more realistic than the assumption in the IRR. Managers have been slow to adopt the IRR, because percentage returns are a harder concept for them to grasp. is the single best method to use when making capital budgeting decisions.
Capital Budgeting Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 12% to evaluate projects such as these. Time Project A Cash Flows Project B Cash Flows 0 -$300,000 -$405,000 1 -387,000 134,000 2 -193,000 134,000 3 -100,000 134,000 4 600,000 134,000 5 600,000 134,000 6 850,000 134,000 7 -180,000 0 Under what conditions on the cost of capital should project B be preferred to project A?
Help please
Incremental cash flows: a. refer to only cash flows which occur at the end of a project b. are cash flows which change if you proceed with the project c. refer to only cash flows which occur at the start of a project d. are never included in capital budgeting analysis e. refer to the existing cash flows of the business
11. ALGEBRA Fatima Sheroud sells children's clothing for The Grasshopper Shoppe. She is paid weekly on a straight commission of 4% on sales of $5,000.00 or less and 5% on sales in excess of $5,000.00. One week Fatima had a gross pay of $594.50. What were her total sales for that week? nts reserved.
All of the following are data rules associated with capital budgeting EXCEPT: a. Include changes across the full life cycle of the product or service. b. Include changes in every functional area of the business. c. Include financing flows in the cash flows of all proposed projects. d. Include forecasted inflation in the cash flow estimates.
Statement 1: Three of the four capital budgeting screening methods (Net Present Value, Internal Rate of Return and Payback Method) rely on the relevant expected cash inflows and outflows, whereas one (the Accrual Accounting Rate of Return Method) utilizes relevant accounting incomes and expenses. Statement 2: All expected cash flows in a capital budgeting analysis are treated as though they are received at the end of the year to which they are assigned, even though in actuality, they will be received throughout the year. Select the correct response: Both statements are correct. Only statement 1 is correct. Only statement 2 is correct. Both statements are incorrect.
A real estate company wants to borrow $6.5 million to in a project. The interest rate for the borrowing is 12% in APR compounded quarterly. The first payment will be made at the end of the first quarter after borrowing. If the real estate company wants to pay back a fixed amount of money per quarter for 15 years, what is the quarterly repayment for the real estate company? (with calculations)
Click on the quadrant that will yield the best capital budgeting decision. - NPV Hi IRR Low IRR + NPV
Please answer subparts A, B & C

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