Company S desires to add a new line to its product mix. For the purpose of this the analysis of capital budgeting are conducted by person X an MBA graduate. In order to set up this a machinery should be installed. For this installation company incurred certain additional expenses such as installation expenses and shipping charge etc. The machinery has a 4 years’ life with a salvage value of $25000. The new line leads to increase sales. It results to an increase in company’s net working capital by 12% value of sales. Company’s tax rate is 40% and risk adjusted cost of capital and weighted average cost of capital for an average project is 10%. To discuss: The reason why inflation significant in forecasting cash flows and calculate yearly sales revenues and costs.

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Answer 1

Question

Chapter 11, Problem 3MC

Summary Introduction

Case summary:

Company S desires to add a new line to its product mix. For the purpose of this the analysis of capital budgeting are conducted by person X an MBA graduate. In order to set up this a machinery should be installed. For this installation company incurred certain additional expenses such as installation expenses and shipping charge etc. The machinery has a 4 years’ life with a salvage value of $25000.

The new line leads to increase sales. It results to an increase in company’s net working capital by 12% value of sales. Company’s tax rate is 40% and risk adjusted cost of capital and weighted average cost of capital for an average project is 10%.

To discuss: The reason why inflation significant in forecasting cash flows and calculate yearly sales revenues and costs.

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Answer 2

Question

Chapter 11, Problem 3MC

Summary Introduction

Case summary:

Company S desires to add a new line to its product mix. For the purpose of this the analysis of capital budgeting are conducted by person X an MBA graduate. In order to set up this a machinery should be installed. For this installation company incurred certain additional expenses such as installation expenses and shipping charge etc. The machinery has a 4 years’ life with a salvage value of $25000.

The new line leads to increase sales. It results to an increase in company’s net working capital by 12% value of sales. Company’s tax rate is 40% and risk adjusted cost of capital and weighted average cost of capital for an average project is 10%.

To discuss: The reason why inflation significant in forecasting cash flows and calculate yearly sales revenues and costs.

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Answer 3

Question

Chapter 11, Problem 3MC

Summary Introduction

Case summary:

Company S desires to add a new line to its product mix. For the purpose of this the analysis of capital budgeting are conducted by person X an MBA graduate. In order to set up this a machinery should be installed. For this installation company incurred certain additional expenses such as installation expenses and shipping charge etc. The machinery has a 4 years’ life with a salvage value of $25000.

The new line leads to increase sales. It results to an increase in company’s net working capital by 12% value of sales. Company’s tax rate is 40% and risk adjusted cost of capital and weighted average cost of capital for an average project is 10%.

To discuss: The reason why inflation significant in forecasting cash flows and calculate yearly sales revenues and costs.

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Answer 4

Question

Chapter 11, Problem 3MC

Summary Introduction

Case summary:

Company S desires to add a new line to its product mix. For the purpose of this the analysis of capital budgeting are conducted by person X an MBA graduate. In order to set up this a machinery should be installed. For this installation company incurred certain additional expenses such as installation expenses and shipping charge etc. The machinery has a 4 years’ life with a salvage value of $25000.

The new line leads to increase sales. It results to an increase in company’s net working capital by 12% value of sales. Company’s tax rate is 40% and risk adjusted cost of capital and weighted average cost of capital for an average project is 10%.

To discuss: The reason why inflation significant in forecasting cash flows and calculate yearly sales revenues and costs.

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Answer 5

Chapter 11, Problem 3MC

Summary Introduction

Case summary:

Company S desires to add a new line to its product mix. For the purpose of this the analysis of capital budgeting are conducted by person X an MBA graduate. In order to set up this a machinery should be installed. For this installation company incurred certain additional expenses such as installation expenses and shipping charge etc. The machinery has a 4 years’ life with a salvage value of $25000.

The new line leads to increase sales. It results to an increase in company’s net working capital by 12% value of sales. Company’s tax rate is 40% and risk adjusted cost of capital and weighted average cost of capital for an average project is 10%.

To discuss: The reason why inflation significant in forecasting cash flows and calculate yearly sales revenues and costs.

Answer 6

Chapter 11, Problem 3MC

Summary Introduction

Case summary:

Company S desires to add a new line to its product mix. For the purpose of this the analysis of capital budgeting are conducted by person X an MBA graduate. In order to set up this a machinery should be installed. For this installation company incurred certain additional expenses such as installation expenses and shipping charge etc. The machinery has a 4 years’ life with a salvage value of $25000.

The new line leads to increase sales. It results to an increase in company’s net working capital by 12% value of sales. Company’s tax rate is 40% and risk adjusted cost of capital and weighted average cost of capital for an average project is 10%.

To discuss: The reason why inflation significant in forecasting cash flows and calculate yearly sales revenues and costs.

Answer 7

Chapter 11, Problem 3MC

Summary Introduction

Case summary:

Company S desires to add a new line to its product mix. For the purpose of this the analysis of capital budgeting are conducted by person X an MBA graduate. In order to set up this a machinery should be installed. For this installation company incurred certain additional expenses such as installation expenses and shipping charge etc. The machinery has a 4 years’ life with a salvage value of $25000.

The new line leads to increase sales. It results to an increase in company’s net working capital by 12% value of sales. Company’s tax rate is 40% and risk adjusted cost of capital and weighted average cost of capital for an average project is 10%.

To discuss: The reason why inflation significant in forecasting cash flows and calculate yearly sales revenues and costs.

Answer 8

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Answer 9

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Answer 10

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Answer 11

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Solution Summary: The author explains why inflation is significant in forecasting cash flows and calculate yearly sales revenues and costs.

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