The problems created by capital rationing for discounted cash flow analysis. Introduction: Capital rationing is a situation that takes place when the company has a positive net present value (NPV) project. It means the company has a profitable investment. The managers face this situation, when they do not have enough funds to invest in all the projects having a positive NPV. Discounted cash flow is the process of discounting the future cash flows back to the present to determine the present value of cash flows. The cash flows are discounted with the help of a discount rate.

Question

Want to see the full answer?

Answer 1

Question

Chapter 11.6, Problem 11.6BCQ

Summary Introduction

To discuss: The problems created by capital rationing for discounted cash flow analysis.

Introduction:

Capital rationing is a situation that takes place when the company has a positive net present value (NPV) project. It means the company has a profitable investment. The managers face this situation, when they do not have enough funds to invest in all the projects having a positive NPV.

Discounted cash flow is the process of discounting the future cash flows back to the present to determine the present value of cash flows. The cash flows are discounted with the help of a discount rate.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Consider the following gasoline sales time series. If needed, round your answers to two decimal digits. Week Sales (1,000s of gallons) 1 17 2 21 3 19 4 23 5 18 6 16 7 20 8 18 9 22 10 20 11 15 12 22 (a) Show the exponential smoothing forecasts using α = 0.1, and α = 0.2. ExponentialSmoothing Week α = 0.1 α = 0.2 13 (b) Applying the MSE measure of forecast accuracy, would you prefer a smoothing constant of α = 0.1 or α = 0.2 for the gasoline sales time series? An smoothing constant provides a more accurate forecast, with an overall MSE of . (c) Are the results the same if you apply MAE as the measure of accuracy? An smoothing constant provides a more accurate forecast, with an overall MAE of . (d) What are the results if MAPE is used? An smoothing constant provides a more accurate forecast, with an overall MAPE of .

After many sunset viewings at SUNY Brockport, Amanda dreams of owning a waterfront home on Lake Ontario. She finds her perfect house listed at $425,000. Leveraging the negotiation skills she developed at school, she persuades the seller to drop the price to $405,000. What would be her annual payment if she opts for a 30-year mortgage from Five Star Bank with an interest rate of 14.95% and no down payment? a- $25,938 b- $26,196 c- $24,500 d- $27,000

Imagine that the SUNY Brockport Student Government Association (SGA) is considering investing in sustainable campus improvements. These improvements include installing solar panels, updating campus lighting to energy-efficient LEDs, and implementing a rainwater collection system for irrigation. The total initial investment required for these projects is $100,000. The projects are expected to generate savings (effectively, the cash inflows in this scenario) of $30,000 in the first year, $40,000 in the second year, $50,000 in the third year, and $60,000 in the fourth year due to reduced energy and maintenance costs. SUNY Brockport’s discount rate is 8%. What is the NPV of the sustainable campus improvements? (rounded) a- $70,213b- $48,729c- $45,865d- $62,040