None Question:Which of the following transactions will increase acorporation's operating returns on assets?a. sell stock and use the money to pay off somelong-term debt.b. sell 10-year bonds and use the money to pay offcurrent liabilities.c. negotiate a new contract that lowers rawmaterial costs by 10%.d. increase sales by 10%.Choose one option and explain.

Step 1: Introduction to the Operating Return on AssetThe return on asset is a measure of the return…

Answered: Question: Which of the following…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

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Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 4EB: Assume a company is going to make an investment in a machine of $825,000 and the following are the...

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QUESTION: WHICH OF THE FOLLOWING TRANSACTIONS WILL INCREASE A CORPORATION'S RETURNS ON ASSETS? wwwww OPERATING A. SELL STOCK AND USE THE MONEY TO PAY OFF SOME LONG-TERM DEBT. B. SELL 10-YEAR BONDS AND USE THE MONEY TO PAY OFF CURRENT LIABILITIES. C. NEGOTIATE A NEW CONTRACT THAT LOWERS RAW MATERIAL COSTS BY 10%. D. INCREASE SALES BY 10%. www CHOOSE ONE OPTION AND EXPLAIN.
A company borrows $4 to finance a project. It has two choices when beginning the project. The first option has potential payoff of either $2 or $8 (both equally likely). The second option has potential payoffs of $0 or $16 (both equally likely). The lender would prefer the _____ option because the expected value of the first option is option is and the expected value of the second first; $3; $2 first; $8; $5 second; $5; $8 second; $16; $4
Suppose the following two independent investment opportunities are available to a company. The appropriate discount rate is 8 percent. Year O 1 2 3 Project Alpha -$4,500 b. 2,300 2,200 1,450 a. Compute the profitability index for each of the two projects. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project Alpha Project Beta Project Beta -$ 6,100 1,350 4,500 4,000 Profitability Index Which project(s), if either, should the company accept based on the profitability index rule? Project Alpha O Project Beta Neither project O Both projects
Oll option information and correct answer
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(a) Financial engineering deals with the design of new assets. Draw the payoff (at t=1) of the following bull butterfly spread: Purchase 1 call with exercise price a Sell 2 calls with exercise price (atb)/2 Purchase 1 call with exercise price b as a function of the underlying stock price S at t=1 where a=120and b=140. (b) An individual agent thinks that there is a high probability that the Dow Jones will have a payoff (or points) between a=32,000 and b=36,000 at t=1. Design a digital option (see Figure 1) as a sequence of calls on the Dow that converges to a pure bet on getting $1 on the interval [32,000, 36,000], i.e. if the Dow lies between Se[32,000, 36,000] at t=1, then the portfolio of calls pays off exactly $1. The payoff is O otherwise. Figure I (Digital option) payoff a-32,000 b-36,000 Hint: You have to modify the sell strategies of a bull butterfly spread to obtain a payoff as given in Figure 2 and then adjust n and õ appropriately. Figure 2 payoff of portfolio 1-nő a b-8
The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 0 1 2 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100 If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept? If the firm applies the Net Present Value (NPV) decision rule, which project should it take? Are your answers in (a) and (b) different? Explain why?
A firm has the following investment alternatives (refer to image): Each investment costs $3,000; investments B and C are mutually exclusive,and the firm’s cost of capital is 8 percent. a.) According to the internal rates of return, which investment(s) should the firm make? Why? b.) According to both the net present values and internal rates of return, which investments should the firm make? c.) If the firm could reinvest the $3,600 earned in year 1 from investment B at 10 percent, what effect would that information have on your answer to part b? Would the answer be different if the rate were 14 percent?

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