The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together tomake capital budgeting decisions.Consider the case of Blue Hamster Manufacturing Inc.:Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backupservers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Delta is 11.3%, but he can't recall howmuch Blue Hamster originally invested in the project nor the project's net present value (NPV). However, he found a note that detailedthe annual net cash flows expected to be generated by Project Delta. They are:YearCash FlowYear 1$1,800,000Year 2$3,375,000Year 3$3,375,000Year 4$3,375,000The CFO has asked you to compute Project Delta's initial investment using the information currently available to you.. He has offered the followingsuggestions and observations:• A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflowsequals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR.• The level of risk exhibited by Project Delta is the same as that exhibited by the company's average project, which means that ProjectDelta's net cash flows can be discounted using Blue Hamster's 9% WACC. The CFO has asked you to compute Project Delta's initial investment using the information currently available to you. He has offered the followingsuggestions and observations:• A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflowsequals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR.• The level of risk exhibited by Project Delta is the same as that exhibited by the company's average project, which means that ProjectDelta's net cash flows can be discounted using Blue Hamster's 9% WACC.Given the data and hints, Project Delta's initial investment isand its NPV is(rounded to the nearest whole dollar).A project's IRR willif the project's cash inflows increase, and everything else is unaffected.

The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Delta is 11.3%, but he can't recall how much Blue Hamster originally invested in the project nor the project's net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Delta. They are: Year Cash Flow Year 1 $1,800,000 Year 2 $3,375,000 Year 3 $3,375,000 Year 4 $3,375,000 The CFO has asked you to compute Project Delta's initial investment using the information currently available to you. He has offered the following

The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Delta is 11.3%, but he can't recall how much Blue Hamster originally invested in the project nor the project's net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Delta. They are: Year Cash Flow Year 1 $1,800,000 Year 2 $3,375,000 Year 3 $3,375,000 Year 4 $3,375,000 The CFO has asked you to compute Project Delta's initial investment using the information currently available to you. He has offered the following

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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Klass Joinery Limited has just implemented a just in time assembly line system which has decreased net working capital (NWC). Inventory is expected to decrease from $254600 to $ 114592 while accounts payable will also decrease by $34704. What is the cash flow impact for the change in NWC to be included in the initial investment for capital budgeting purposes?
Fountain Corporation’s economists estimate that a good business environment and a bad business environment are equally likely for the coming year. The managers of the company must choose between two mutually exclusive projects. Assume that the project the company chooses will be the firm’s only activity and that the firm will close one year from today. The company is obligated to make a $4,100 payment to bondholders at the end of the year. The projects have the same systematic risk but different volatilities. Consider the following information pertaining to the two projects: Economy Probability Low-Volatility Project Payoff High-Volatility Project Payoff Bad .50 $ 4,100 $ 3,500 Good .50 4,600 5,200 a. What is the expected value of the company if the low-volatility project is undertaken? The high-volatility project? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) b. What is the expected value of the…
O 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 75%, 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 - So Sales growth rate=g Last year's total assets - Ag Last year's profit margin = PM Select the correct answer. O a $533 Ob $50.7 O $54.6 Od. 152.0 O. 1572 Dewan Ke -17p9607xlsx A Exercise 13-17 (1)adsx $300.0 40% $500 20.0% Last year's accounts payable Last year's notes payable Last year's accruals Initial payout ratio EXERCISE 13-17 D.xlsx A 0 Exercise 13-17.xlsx $50.0…
In Management Accounting, there are some investment appraisal methods to analyse the performance of investment projects. The following table lists out the financial data of two projects for London Technology Ltd: Projects/Methods A B Payback Period 2 year and 4 months 2 year and 9 months Accounting Rate of Return 27.6% 15.44% Net Present Value £23,040 £21,798 Required: Which project should company accept? In the discussion, please explain which method can lead to better decision.
Graham, Harvey, and Puri (2015) conducted a survey on how financial executives (i.e., 1,000 CEOs and CFOs) around the world make decisions about capital allocation and how they delegate capital to particular projects. They find that over nearly 79% of CEOs make investment decisions based on a project's NPV and about 66% state that cash flow timing is an important consideration that they evaluate when making capital allocation decisions. These findings pair nicely with the material that we are covering this week, which include understanding valuation techniques such as the calculation of the Net Present Value (NPV), Internal Rate of Return (IRR), Payback, and Profitability Index for a particular project. However, the results of the survey also indicate that managerial reputation and rank of the person that is responsible for the project are also important considerations that CEOs and CFOs take into consideration when making capital allocation decisions. The questions that you should…
During the past few years, Super Technologies has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining and the company has decided to look seriously at a major expansion program that had been proposed by the marketing department. As the assistant to the financial vice-president, it is your task is to estimate Super’s weighted average cost of capital (WACC). The VP has provided you with the following information: The firms’ tax rate is 40%. The current market price of Super’s outstanding bonds is $1,153.72. The bonds have an annual coupon rate of 12% and make coupon payments semiannually. The bonds mature in 15 years and have a par value of $1,000. The current price of the firm’s preferred stock is $113.10 per share. The stock has a $100 par value and a 10% annual dividend rate (paid annually). The current price of the firm’s common stock is $50 per share.…
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…
The engineering manager at FXO Plastics wants to complete an alternative evaluation study. She asked the finance manager for the corporate MARR. The finance manager gave her some data on the project and stated that all projects must clear their average (pooled) cost by at least 4%. Use the data to determine the minimum before-tax MARR. Source of Funds Amount, $ Average Cost, % Retained earnings 4,000,000 7.4 Stock sales 6,000,000 4.8 Long-term loans 5,000,000 9.8
Mace Manufacturing is in the process of analyzing its investment decision-making procedures. Two projects evaluated by the firm recently involved building new facilities in different regions, North and South. The basic variables surrounding each project analysis and the resulting decision actions are summarized in the following table: ( see attached file) d. If the firm maintains a capital structure containing 40% debt and 60% equity, find its weighted average cost using the data in the table. e. If both analysts had used the weighted average cost calculated in part d, what recommendations would they have made regarding the North and South facilities? f. Compare and contrast the analysts' initial recommendations with your findings in part e.Which decision method seems more appropriate? Explain why.
Pls help correctly thanks.
Mace Manufacturing is in the process of analyzing its investment decision-making procedures. Two projects evaluated by the firm recently involved building new facilities in different regions, North and South. The basic variables surrounding each project analysis and the resulting decision actions are summarized in the following table: Basic variables North South Cost $7,000,000 $6,370,000 Life 12 years 12 years Expected return 7.8% 14.7% Least-cost financing Source Debt Equity Cost (after-tax) 5.1% 16.6% Decision Action Invest Don't invest Reason 7.8%>5.1% cost 14.7%<16.6% cost d. If the firm maintains a capital structure containing 40% debt and 60% equity, find its weighted average cost using the data in the table. e. If both analysts had used the weighted average cost calculated in part d, what recommendations would they have made regarding the…
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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