Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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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 25% 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
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b. Disregard the assumptions in Part a. What is the depreciable basis? What are the annual depreciation expenses?
c. Calculate the annual sales revenues and costs (other than depreciation). Why is it important to include inflation when estimating cash flows?
d. Calculate annual net operating profit after sales (NOPAT). Then calculate the operating cash flows.
In terms of future value (FV) which of the following considerations is correct?
Select one:
O A. Consider only future cash flows as relevant factors
O B. Consider only past cash flows as relevant factors
O C. Consider past sales revenues and cost of sales as relevant factors
O D. Consider future gross profit and net profits as relevant factors
What are:
the payback method,
the Accounting Rate of Return, and
Discounted Cash Flow Model (Net Present Value and Internal Rate of Return)
Chapter 11 Solutions
Financial Management: Theory & Practice
Ch. 11 - Prob. 2QCh. 11 - Why is it true, in general, that a failure to...Ch. 11 - Prob. 4QCh. 11 - Explain how net operating working capital is...Ch. 11 - How do simulation analysis and scenario analysis...Ch. 11 - Why are interest charges not deducted when a...Ch. 11 - Most firms generate cash inflows every day, not...Ch. 11 - What are some differences in the analysis for a...Ch. 11 - Distinguish among beta (or market) risk,...Ch. 11 - Prob. 11Q
Ch. 11 - Talbot Industries is considering launching a new...Ch. 11 - The financial staff of Cairn Communications has...Ch. 11 - Allen Air Lines must liquidate some equipment that...Ch. 11 - Although the Chen Company’s milling machine is...Ch. 11 - Wendys boss wants to use straight-line...Ch. 11 - The Campbell Company is considering adding a...Ch. 11 - The president of your company, MorChuck...Ch. 11 - The Rodriguez Company is considering an...Ch. 11 - St. Johns River Shipyards welding machine is 15...Ch. 11 - Shao Industries is considering a proposed project...Ch. 11 - The Everly Equipment Company’s flange-lipping...Ch. 11 - The Bartram-Pulley Company (BPC) must decide...Ch. 11 - The Yoran Yacht Company (YYC), a prominent...Ch. 11 - Shrieves Casting Company is considering adding a...Ch. 11 - Disregard the assumptions in Part a. What is the...Ch. 11 - Prob. 3MCCh. 11 - Prob. 4MCCh. 11 - Estimate the required net operating working...Ch. 11 - Prob. 6MCCh. 11 - Calculate the project cash flows for each year....Ch. 11 - Prob. 8MCCh. 11 - What is a real option? What are some types of real...
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- In computing the periods net operating cash flows, why are increases in current liabilities and decreases in current assets added back to net income?arrow_forwardHow does one determine the value of any asset whose value is based on expected future cash flows?arrow_forwardWhich of the following methods consider the time value of money? A. payback and accounting rate of return B. payback and internal rate of return C. internal rate of return and accounting rate of return D. internal rate of return and net present valuearrow_forward
- Under the principle of cashflow estimation, why it is important that cashflow should be measured on after-tax basis?arrow_forwardWhich of the following phrases best describes the term " actual cash value"? a. market value b. appraised value c. replacement cost less depreciation d. original cost less depreciationarrow_forwardWhen deducing cash flow numbers, which of the following refers to a reflection of value? Select an answer: accounts receivable wage expenses accounts payable income statementarrow_forward
- would these be correct? What would be ?arrow_forwardWhat is the difference between the Direct Method and Indirect Method for calculating Cash Flow?arrow_forwardhow are accrual accounting earnings used in valuation and why are current earnings considered more useful than current cash flows for assessing future cash flows?arrow_forward
- Why, in most cases, accrual-basis net income provides a better measure of perfomance than net operating cash flow?arrow_forwardWhich of the following method is not based on concept of time value of money? A. Discounted payback period B. Accounting rate of return C. Profitability index D. Modified internal rate of returnarrow_forwardHow do youcalculate present and future value cash flows from various time periods using single and multiple payments?arrow_forward
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