Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 13, Problem 4MC
Summary Introduction
Case summary:
Company S considering adding a new line to its product mix and the production line would be set up in unused space in the main plant. It has installed machinery which generates the incremental sales of $1,250 units per year.
Due to this the sale price and cost prices are increased by 3% and firm’s net working capital would have to increase by an amount equal to 12% of sales revenues.
To determine: Annual sales revenue and costs except
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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.
Determining the future value of one or more present day cash flows is known as ________.
A.
disinvesting
B.
annuitizing
C.
discounting
D.
compounding
While calculating Free Cash Flow (FCF), capital investment expenditure is :
a Subtracted from from EBIT(1-t) +(Depreciation +Amortization)
b Subtracted from EBT.
c Subtracted from EBIT(1-t)
d Subtracted from EBIT.
Chapter 13 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 13 - Define each of the following terms:
Project cash...Ch. 13 - Prob. 2QCh. 13 - Why is it true, in general, that a failure to...Ch. 13 - Prob. 4QCh. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Why are interest charges not deducted when a...Ch. 13 - Prob. 8QCh. 13 - Prob. 9QCh. 13 - Distinguish among beta (or market) risk,...
Ch. 13 - Prob. 11QCh. 13 - Talbot Industries is considering launching a new...Ch. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Wendys boss wants to use straight-line...Ch. 13 - New-Project Analysis
The Campbell Company is...Ch. 13 - Prob. 7PCh. 13 - Inflation Adjustments
The Rodriguez Company is...Ch. 13 - Prob. 10PCh. 13 - Scenario Analysis Shao Industries is considering a...Ch. 13 - Prob. 1MCCh. 13 - Prob. 2MCCh. 13 - Prob. 3MCCh. 13 - Prob. 4MCCh. 13 - Prob. 5MCCh. 13 - Prob. 6MCCh. 13 - Calculate the cash flows for each year. Based on...Ch. 13 - Prob. 8MCCh. 13 - (1) What are the three types of risk that are...Ch. 13 - Prob. 12MCCh. 13 - Prob. 13MCCh. 13 - What is a real option? What are some types of real...
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- Please answer the following question. In this method, the company compares the amount spent on the investment with the discounted expected future cash inflows. a.Payback b.NRV c.Investment d.IRRarrow_forwardTo calculate net present value of a project with normal cash flows, find the present value of the expected cash flows, and subtract A) retained earnings. B) the cost of the investment. C) the factor loading. D) the payback period.arrow_forwardIn the discounted cash flow (DCF) method, which of the following is the correct formula for calculating Unlevered Free Cash Flows (UFCF)? A)EBIT (1-tax rate) + Depreciation and Amortization (D&A) + Investment in Net Working Capital (\Delta NWC) + Capital Expenditure (CapEx) B)EBIT (1-tax rate) – D&A – \Delta NWC – CapEx C)EBIT (1-tax rate) + D&A – \Delta NWC + CapEx D)EBIT (1-tax rate) + D&A – \Delta NWC – CapEx E)EBIT (1-tax rate) – D&A + \Delta NWC + CapExarrow_forward
- A characteristic of the payback method is that it: (See your Chapter 25 notes, page 9) Uses accrual accounting inflows in the numerator of the calculation Uses the estimated expected useful life of the asset in the denominator of the calculation Incorporates cash flows received after the payback period has been reached Is based on accounting income Incorporates the time value of money Ignores total project profitabilityarrow_forwardThe length of time required for an investment to generate cash flows sufficient to recover its initial cost is the: O net present value internal rate of return payback period profitability index discounted payback periodarrow_forwardIn the payback method, depreciation is added back to net operating income when computing the annual net cash flow. True or False The internal rate of return is computed by finding the discount rate that equates the present value of a project's cash outflows with the present value of its cash inflows. True or False The internal rate of return method assumes that the cash flows generated by the project are immediately reinvested elsewhere at a rate of return that equals the company's cost of capital. True or False An increase in the expected salvage value at the end of a capital budgeting project will increase the internal rate of return for that project. True False The minimum required rate of return is the discount rate that makes the net present value of the project equal to zero. True False The production budget is typically prepared before the direct materials budget. True False The selling and administrative budget is typically prepared…arrow_forward
- 1. _______________ is the process of determining the future value (FV) of a cash flow or a series of cash flows, while _________________ is the process of finding the present value (PV) of a future cash flow or series of cash flows. A. Calculating, accounting. B. Discounting, compounding. C. Compounding, forwarding. D. Compounding, discounting.arrow_forwardI) In IRR method the cash flows from a project are reinvested at the cost of capital. II) IRR is the rate at which present value of cash inflows is equal to the amount of initial investment. III) It is the rate at which the NPV of the project is positive. IV) IRR method is based on concept of time value of money. V) In IRR method the cash flows from a project are reinvested at the IRR itself. Which of the following statements are incorrect about Internal rate of return (IRR): А. I, II and IV. В. Ш and V C. I, III and IV. D. I only.arrow_forwardWhich of the following should NOT be taken into account in calculating free cash flow? Select one: a. Operating income b. Interest expense c. Net working capital d. Depreciationarrow_forward
- The NPV method assumes that cash inflows associated with a particular investment occur when? A. only at the time of the initial Investment B. only at the end of the year C. only at the beginning of the year D. at any of these timesarrow_forwardIn computing the periods net operating cash flows, why are increases in current liabilities and decreases in current assets added back to net income?arrow_forwardThe IRR method assumes that cash flows are reinvested at _________. A. the internal rate of return B. the companys discount rate C. the lower of the companys discount rate or Internal rate of return D. an average of the internal rate of return and the discount ratearrow_forward
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