Which of the following constitutes an example of a cost, flow, and therefore relevant in an accept/reject decision for capital budgeting? A) A firm has a land that can be used for a new plant site or, alternatively, can be used to grow wheat for profits. B) A firm can produce a new cleaning product that will generate new sales. However, some of the new sales will be from customers who switch from another product the firm currently produces. C) A firm orders and receives a piece of new equipment, which is shipped

Which of the following constitutes an example of a cost, flow, and therefore relevant in an accept/reject decision for capital budgeting? A) A firm has a land that can be used for a new plant site or, alternatively, can be used to grow wheat for profits. B) A firm can produce a new cleaning product that will generate new sales. However, some of the new sales will be from customers who switch from another product the firm currently produces. C) A firm orders and receives a piece of new equipment, which is shipped

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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. The payback period The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Cold Goose Metal Works Inc.: Cold Goose Metal Works Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Delta’s expected future cash flows. To answer this question, Cold Goose’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$6,000,000…
Ford is evaluating a capital investment to convert it's current plant that produces Ford Focus to an electric Ford Ranger. Which of the following must Ford consider when evaluating this capital investment? All of the sales revenue from the new electric Ford Ranger will be included and accounted for when determining future cash flows for NPV analysis. Ford will include any sales revenue from the Ford Focus in its future cash flows of the capital investment project. Ford will need to deduct the current revenue from sales of the Focus when determining future cash flows of for the electric Ford Ranger project. Ford does not consider the Ford Focus revenue as the two projects are independent.
solve this parctie problem
In the textbook's capital budgeting examples, the book assumes that the firm recovers all of its working capital invested into a project. In the real world, is this a reasonable assumption? Justify your position and discuss when it would
Which of the following is not considered a capital investment? 18 Multiple Cholce Ask The development of a new product line. The purchase of a large machine. The acquisition of a subsidlary company. The purchase of a large order of raw materlals used In the production process.
TLT Ltd is considering the purchase of a new machine for use in its production process. Management has developed three alternative proposals to help evaluate the machine purchase. Only one of these proposals can be implemented. Proposals A and B both have the same cost to set up, but the output from proposal A (as measured by future net cash flows) commences at a high rate and then declines over time, while Proposal B starts at a low rate and then increases over time. Proposal C involves buying two of the machines considered under proposal B. That is, proposal C is simply Proposal B scaled by a factor of two. Proposal C results in net cash flows which are similar in magnitude to proposal A's net cash flows in the first two years. The estimated net cash flows, internal rates of return and net present values at 9% and 11% for each proposal are given in the following table. Proposal A -$290,000 $100,000 $90,000 Proposal B -$290,000 $40,000 $50,000 Proposal C -$580,000 $80,000 $100,000 End…
The capital budgeting decision that requires a choice between two decisions is a(n) _______ project. Independent Dependent Mutually exclusive Inclusive The actual value that a firm loses when it makes a capital budgeting decision is a(n) ______ cost Fixed Opportunity Sample Unknown The number of years required for an investment to return the monies invested is known as a projects Economic life Usage rate Capital decision Payback period The future benefits received from investing in a project are the projects Net cash flows Net investment Net cost Net return The capital components included in a firms weighted cost of capital are Common stock Debt Retained earnings All of the above Weaknesses in using solely the payback method as a measure of a projects risk include Not accounting for the time value of money There is no objective criterion for deciding what is an acceptable payback period Cash flows that occur after the payback period have no impact on the…
There are various risk factors that complicate multinational capital budgeting process . List examples of the risk factors and briefly explain .
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.
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc.: Green Caterpillar Garden Supplies Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Alpha’s expected future cash flows. To answer this question, Green Caterpillar’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,500,000…
How can capital budgeting tools assist in evaluating a manager who is responsible for retaining customers of a cellular telephone company?
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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