Answered: two possible products from Islamic…

Business

Finance

two possible products from Islamic finance to the company.

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

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Radley Co. is growing its business and is currently deciding how to finance this programme. Following some research, the business decides that it can either (1) issue bonds and use the money to buy the necessary assets, or (2) lease the assets for an extended period of time. Please respond to the following questions without understanding the relative costs involved: a. What benefits might leasing the assets have over purchasing them? b. What drawbacks can leasing the assets have in comparison to buying them? c. How would leasing the assets vary from issuing bonds and buying the assets in terms of how it will impact the Statement of Financial Position?
A company manufacturing high precision polycarbonate plastic lenses wants to expand its manufacturing operations. The company is financially reasonably sound and has sufficient funds for the expansion. For purchase of machinery, the management has two options Option 1: Purchase new machinery by taking a bank loan Option 2: Purchase second-hand used machinery by utilizing its own funds Is it advisable for the company to purchase used equipment / machinery? What are the sources of used equipment / machinery?
As a part of their expansion plan, NYA Company that is producing notebooks is planning to buy a new production line to produce its own ink. Ordinarily, they would resort to their bank to take long-term financing to fund the purchase. However, the company is already highly leveraged, and the bank refused to give them additional funding. What is their best option now if they insist on buying the new production line? Would this type of finance be short or long term? What kind of advantages does the company have if it resorts to this type of financing?
A farmer in Iowa is considering either leasing some extra land or investing in savings certificates at the local bank. If weather conditions are good next year, the extra land will give the farmer an excellent harvest. However, if weather conditions are bad, the farmer will lose money. The savings certificates will result in the same return, regardless of the weather conditions. The return for each investment, given each type of weather condition, is shown in the following payoff table: Weather Decision Good Bad Lease land $90,000 $-40,000 Buy savings certificate 10,000 10,000 Select the best decision, using the following decision criteria: a. Maximax b. Maximin
Calculate the Net present value of the replacement decision? At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Price Co. is considering replacing an existing piece of equipment. The project involves the following: The new equipment will have a cost of $1,800,000, and it will be depreciated on a straight-line basis over a period of six years (years1-6). The old machine is also being depreciated on a straight-line basis. It has a book value of $200,000 (at year O) and four more years of depreciation left ($50,000 per year). . The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000. Replacing the old machine will require an investment in net working capital (NWC) of $20,000…
Are the answers to A & B correct? Could I get some help on the multiple choice (B&C)?
This question is not grared. In a small seaside community called Reform Village, a huge company is proposing to enterone of two projects. Project A is to build a five storey hotel on the pristine beachfront ofReform Village. Project B is to build twenty self- contained log cabins along the beach withan additional two cabins for a restaurant and health spa.Each project requires an initial investment of $2 000 000 and has no salvage value. Theinvesting company estimates the cost of capital to be 10%. The company must choose eitherproject A or Project B. The following cash flows are projected for Project A and Project Bover five yearsYear Project A Project B2000 $600 000 02001 600 000 400 0002002 600 000 400 0002003 600 000 1 000 0002004 600 000 1 800 000Additional InformationThe citizens of Reform Village are divided over which project will benefit the villagers most.Some villagers prefer the high rise hotel because of its potential for more jobs for villagers ascleaners, cooks and…
Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri. The policy has an annual cost of $10,000. If Alexander Industries doesn’t purchase the insurance and minor fire damage occurs, a cost of $100,000 is anticipated; the cost if major or total destruction occurs is $200,000. The costs, including the state-of-nature probabilities, are as follows: Using the expected value approach, what decision do you recommend? What lottery would you use to assess utilities? (Note: Because the data are costs, the best payoff is $0.) Assume that you found the following indifference probabilities for the lottery defined in part (b). What decision would you recommend? Do you favor using expected value or expected utility for this decision problem? Why?
A lodging property wishes to change its lighting system with the most efficient ones. The old system will be sold in the market and the new system will cost $500,000. The new investment does not require an additional outlay but it needs incremental working capital of $48,000. The old lighting system can be sold for $200,000 in the market which is an equivalent of its books value. Moreover, the new investment will not have incremental sales revenue but it will have incremental operating costs of $22,000, and incremental depreciation of $11,000 for the first year. There is no expected change in net working capital after the project is undertaken and no estimated salvage value for the first year. For the second year, suppose that there is 12.00% increase in operating costs and depreciation. At the end of the second year, the estimated salvage value is $10,000 on the new lighting system. What are the net investment and net cash flow for the first and second year for this investment (assume…
Water supply for an irrigation system can be obtained from a stream in some nearby mountains. Two alternatives are being considered, both of which have essentially infinite lives, provided proper maintenance is performed. The first is a concrete reservioir with a steel pipe system and the second is an earthen dam with a wooden aqueduct. Below are the costs associated with each. Compare the present worths of the two alternatives, using an interest rate of 8%. Which alternative should be chosen {Perform all calculations using 5 significant figures and round any monetary answers to the nearest dollar}? Concrete Reservoir 550,000 2,250 N/A First Cost [dollars] Annual Maintenance Costs [dollars] Replacing the wood portion of the aqueduct each 15 years The cost Concrete Reservoir is (in PW dollars): Earthen Dam 230,000 15,000 120,000 Number The cost of the Earthen Dam plus Aqueduct is (in PW dollars): Number Which alternative should be chosen (enter either 'Reservoir' or 'Dam'?
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O Δ You work for a construction company that is considering a bid on a project to modernize the power grid in a country that is recovering from an earthquake. The cost to prepare the documentation that is necessary to submit the bid is $50,000. If a bid is submitted, you estimate that the project will be awarded with probability 0.5. The company's profit depends on the political situation prevalent in the country at the time of the project. Based on your experience, you conclude that with probability 0.2, the country would present favorable conditions and that the company would earn $240,000; with probability 0.7, the country would present stable conditions and the company would earn $140,000; and that with probability 0.1, the country would present unstable conditions and the company would lose 560,000. a. Would you recommend that the company bid on the project? b. Before your company bids on the project, what is the maximum amount you would pay for a forecast of the political…