FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
10th Edition
ISBN: 9781337910972
Author: Brigham
Publisher: CENGAGE L
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Chapter 12, Problem 17P
OPTIMAL CAPITAL BUDGET Hampton Manufacturing estimates that its WACC is 125%. The company is considering the following seven investment projects:
| Project | Size | |
| A | $ 750,000 | 14.0% |
| B | 1,250,000 | 13.5 |
| C | 1,250,000 | 13.2 |
| D | 1,250,000 | 13.0 |
| E | 750,000 | 12.7 |
| F | 750,000 | 12.3 |
| G | 750,000 | 12.2 |
- a. Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted, and what is the firm's optimal capital budget?
- b. Now assume that Projects C and D are mutually exclusive. Project D has an
NPV of $400,000, whereas Project C has an NPV of $350,000. Which set of projects should be accepted, and what is the firm's optimal capital budget? - c. Ignore Part b and assume that each of the projects is independent but that management decides to incorporate project risk differentials. Management judges Projects B, C, D, and E to have average risk; Project A to have high risk; and Projects F and G to have low risk. The company adds 2% to the WACC of those projects that are significantly more risky than average, and it subtracts 2% from the WACC of those projects that are substantially less risky than average. Which set of projects should be accepted, and what is the firm's optimal capital budget?
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Problem 2-21 Financial Statements
Use the following information for Ingersoll, Incorporated. Assume the tax rate is 23
percent.
2020
2021
Sales
Depreciation
$ 19,073
$17,436
1,811
1,886
Cost of goods sold
4,729
4,857
Other expenses
1,021
899
Interest
870
1,001
Cash
6,292
6,916
Accounts receivable
8,190 9,877
Short-term notes payable
1,320 1,297
Long-term debt
20,770 25,011
Net fixed assets
51,218 54,723
Accounts payable
4,624 5,094
Inventory
14,538
15,438
1,700 1,768
Dividends
Prepare a balance sheet for this company for 2020 and 2021. (Do not round
intermediate calculations.)
Cash
Assets
Accounts receivable
Inventory
INGERSOLL, INCORPORATED
Balance Sheet as of December 31
2020
2021
$
6,292 $
6,916
8,190
9,877
14,538
15,438
Drov
14 of 20
Ne
Chapter 12 Solutions
FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
Ch. 12 - Prob. 1QCh. 12 - Prob. 2QCh. 12 - Explain why net operating working capital is...Ch. 12 - Prob. 4QCh. 12 - Prob. 5QCh. 12 - Prob. 6QCh. 12 - Prob. 7QCh. 12 - Prob. 8QCh. 12 - Prob. 9QCh. 12 - If you were the CFO of a company that had to...
Ch. 12 - Prob. 11QCh. 12 - REQUIRED INVESTMENT Tannen Industries is...Ch. 12 - Prob. 2PCh. 12 - AFTER-TAX SALVAGE VALUE Karsted Air Services is...Ch. 12 - REPLACEMENT ANALYSIS The Oviedo Company is...Ch. 12 - OPTIMAL CAPTTAL BUDGET Marble Construction...Ch. 12 - DEPRECIATION METHODS Charlene is evaluating a...Ch. 12 - SCENARIO ANALYSIS Huang Industries is considering...Ch. 12 - NEW PROJECT ANALYSIS You must evaluate the...Ch. 12 - NEW PROJECT ANALYSIS You must evaluate a proposal...Ch. 12 - Dauten is offered a replacement machine which has...Ch. 12 - REPLACEMENT ANALYSIS St. Johns River Shipyards is...Ch. 12 - PROJECT RISK ANALYSIS The Butler-Perkins Company...Ch. 12 - NEW PROJECT ANALYSIS Holmes Manufacturing is...Ch. 12 - REPLACEMENT ANALYSIS The Darlington Equipment...Ch. 12 - REPLACEMENT ANALYSIS The Bigbee Bottling Company...Ch. 12 - ABANDONMENT OPTION The Sorensen Supplies Company...Ch. 12 - OPTIMAL CAPITAL BUDGET Hampton Manufacturing...
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