The term "additional funds needed (AFN)" is generally defined as follows: a A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant. b. The amount of assets required per dollar of sales. c. The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth. d. Funds that a firm must raise externally from non-spontaneous sources, ie., by borrowing or by selling new stock to support operations. e. Funds that are obtained automatically from routine business transactions.

The term "additional funds needed (AFN)" is generally defined as follows: a A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant. b. The amount of assets required per dollar of sales. c. The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth. d. Funds that a firm must raise externally from non-spontaneous sources, ie., by borrowing or by selling new stock to support operations. e. Funds that are obtained automatically from routine business transactions.

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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1. Define capital expenditures and provide examples of capital expenditures.2. Cash flows for a particular project should be measured on an incremental basis. What does that mean?3. How does the opportunity cost concept affect capital budgeting cash flow determination?4. What factors should be considered when estimating a new business’ NINV? Is it any different for an asset replacement project. 5. Why is depreciation, a noncash expense, considered when estimating a project’s net cash flows?6. What are the potential tax consequences of selling an old asset in an asset replacement investment decision?
Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The board of directors wants to know the expected impact on shareholder wealth. Knowing that the estimated impact on shareholder wealth equates to net present value (NPV), you use your handy calculator to compute the value. What is the project's NPV? Assume that the cash flows occur at the end of each year. The discount rate (i.e., required rate of return, hurdle rate) is 17.4%. (Round to nearest penny) Year 0 cash flow -132,000 Year 1 cash flow 52,000 Year 2 cash flow 31,000 Year 3 cash flow 42,000 Year 4 cash flow 39,000 Year 5 cash flow 18,000
To calculate net present value of a project with normal cash flows, find the present value of the expected cash flows, and subtract A) retained earnings. B) the cost of the investment. C) the factor loading. D) the payback period.
The following information is given for Company: Asset = 7,000,000, Sales = 20,000,000, Spontaneous Liabilities = 25,00,000, Profit Margin = 6%, Dividend payout = 0.40, Sales to grow @ 10%. Estimate External Fund Requirement of the firm. What is the relevance of estimating External Fund Requirement? Explain how percentage of sales method can be used for estimation of External Fund Requirement.
One of the following sentences is true regarding the money weighted rate of return and the time weighted rate of return. Select one: O a. TWRR require that the precise times of all cash flows of new money into and out of the fund over the period are known. O b. TWRR depends upon particular subdivisions of the period. C. MWRR depends upon any particular subdivision of the entire period and generally gives greater weight to the yields pertaining to the times when the fund is more constant. d. Both measures have to yield the same result.
Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The board of directors wants to know the expected impact on shareholder wealth. Knowing that the estimated impact on shareholder wealth equates to net present value (NPV), you use your handy calculator to compute the value. What is the project's NPV? Assume that the cash flows occur at the end of each year. The discount rate (i.e., required rate of return, hurdle rate) is 15.4%. (Round to nearest penny) Year O cash flow Year 1 cash flow Year 2 cash flow Year 3 cash flow Year 4 cash flow Year 5 cash flow Answer: -113,000 45,000 34,000 58,000 33,000 35,000
How does depreciation enter into the calculation of operating cash inflows? Explain theu underlyinglogic of such calculation process. Why is it important to evaluate capital budgetingp projectson the basis of incremental cash flows?
3. follows: Carnegie Corp. projects an annual cash flow for one of its divisions as Year 0 1 2 3 4 5 6 Cash flow (SM) 3 0 -10 2 2 2 2 What is the IRR for this cash flow stream? Try plotting the NPV as a function of the discount rate. Are there any problems with using IRR for this application?
Suppose an investment has conventional cash flows with positive NPV. How would it impact your decision based on capital budgeting techniques mentioned below? Proﬁtability index (PI) Internal Rate of Return (IRR) Payback Period (PBP) Ratio 2020 2019 2018 2020- Industry Average Inventory Turnover 62.65 42.42 32.25 53.25 Receivables in days 94 63 50 115 Debt to Equity 0.75 0.85 0.90 0.88 Quick Ratio 1.028 1.03 1.029 1.031 Current Ratio 1.33 1.21 1.15 1.25
Your firm is evaluating a capital budgeting project. The estimated cash flows appear below. The board of directors wants to know the expected impact on shareholder wealth. Knowing that the estimated impact on shareholder wealth equates to net present value (NPV), you use your handy calculator to compute the value. What is the project's NPV? Assume that the cash flows occur at the end of each year. The discount rate (i.e., required rate of return, hurdle rate) is 17.5%. (Round to nearest penny) Year 0 cash flow -115,000 Year 1 cash flow 60,000 Year 2 cash flow 47,000 Year 3 cash flow 48,000 Year 4 cash flow 51,000 Year 5 cash flow 27,000
Why should the cost of capital used in capital budgeting be calculated as a weighted average of the capital component rather than the cost of the specific financing used to fund a particular project? Please explain using the images attached.
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.

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