Purple Whale Foodstuffs Inc. is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $850,000. Purple Whale Foodstuffs Inc. has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Purple Whale Foodstuffs Inc.'s WACC is 8%, and project Sigma has the same risk as the firm's average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $275,000 Year 2 $400,000 Year 3 $450,000 Year 4. $425,000 Which of the following is the correct calculation of project Sigma's IRR? 28.19% O 32.22% O 29.54% O 26.85%

Purple Whale Foodstuffs Inc. is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $850,000. Purple Whale Foodstuffs Inc. has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Purple Whale Foodstuffs Inc.'s WACC is 8%, and project Sigma has the same risk as the firm's average project. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $275,000 Year 2 $400,000 Year 3 $450,000 Year 4. $425,000 Which of the following is the correct calculation of project Sigma's IRR? 28.19% O 32.22% O 29.54% O 26.85%

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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You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington (HHW), which is planning its operation for the coming year. The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 30%, which the firm's investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions. Last year's sales = S0 $300.0 Last year's accounts payable $50.0 Sales growth rate = g 40% Last year's notes payable $15.0 Last year's total assets = A0* $500 Last year's accruals $20.0 Last year's profit margin = PM 20.0% Initial payout ratio 10.0% Select the correct answer. a. $21.9 b. $15.1 c. $16.8 d. $20.2…
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You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington (HHW), which is planning its operation for the coming year. The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 35%, which the firm's investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions. Last year's sales = S0 $300.0 Last year's accounts payable $50.0 Sales growth rate = g 40% Last year's notes payable $15.0 Last year's total assets = A0* $500 Last year's accruals $20.0 Last year's profit margin = PM 20.0% Initial payout ratio 10.0% Select the correct answer. a. $19.0 b. $21.0 c. $25.0 d. $15.0…
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I'm not sure if I am doing this correctly, also not sure which ones to choose for the last question.
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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
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Berdwen, Inc. is analyzing the merits of a potential project. There is great volatility in the marketplace which will impact the project with risky free cash flows. Berdwen, Inc. has a weighted average cost of capital of 15.2%, and forecasts the free cash flows below: Year Expected FCF 0 -$10,000 1 $16,150 2 -$5,500 Use two appropriate capital budgeting techniques to determine if this project should be accepted.

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