a.
Adequate information:
Discount rate=10%
Cash flows of Technology CDMA in Year 0 = -$18 million
Cash flows of Technology CDMA in Year 1= $23 million
Cash flows of Technology CDMA in Year 2= $16 million
Cash flows of Technology CDMA in Year 3= $6 million
Cash flows of Technology G4 in Year 0 = -$25 million
Cash flows of Technology G4 in Year 1 = $21 million
Cash flows of Technology G4 in Year 2 = $51 million
Cash flows of Technology G4 in Year 3 = $41 million
Cash flows of Technology Wi-Fi in Year 0 = -$43 million
Cash flows of Technology Wi-Fi in Year 1 = $39 million
Cash flows of Technology Wi-Fi in Year 2 = $66 million
Cash flows of Technology Wi-Fi in Year 3= $42 million
To determine: Ranks of technologies based on profitability index decision rule.
Introduction: The profitability index is a budgeting technique that evaluates various investment proposals based on profitability. Other budgeting techniques are
b.
Adequate information:
Discount rate=10%
Cash flows of Technology CDMA in Year 0 =-$18 million
Cash flows of Technology CDMA in Year 1=$23 million
Cash flows of Technology CDMA in Year 2=$16 million
Cash flows of Technology CDMA in Year 3=$6 million
Cash flows of Technology G4 in Year 0 =-$25 million
Cash flows of Technology G4 in Year 1 = $21 million
Cash flows of Technology G4 in Year 2 = $51 million
Cash flows of Technology G4 in Year 3 = $41 million
Cash flows of Technology Wi-Fi in Year 0 = -$43 million
Cash flows of Technology Wi-Fi in Year 1 = $39 million
Cash flows of Technology Wi-Fi in Year 2 = $66 million
Cash flows of Technology Wi-Fi in Year 3=$42 million
To determine: Ranks of technologies based on NPV.
Introduction: NPV is the difference between the aggregate value of cash inflows and the aggregate value of cash outflows.
c.
Adequate information:
Discount rate=10%
Cash flows of Technology CDMA in Year 0 =-$18 million
Cash flows of Technology CDMA in Year 1=$23 million
Cash flows of Technology CDMA in Year 2=$16 million
Cash flows of Technology CDMA in Year 3=$6 million
Cash flows of Technology G4 in Year 0 =-$25 million
Cash flows of Technology G4 in Year 1 = $21 million
Cash flows of Technology G4 in Year 2 = $51 million
Cash flows of Technology G4 in Year 3 = $41 million
Cash flows of Technology Wi-Fi in Year 0 = -$43 million
Cash flows of Technology Wi-Fi in Year 1 = $39 million
Cash flows of Technology Wi-Fi in Year 2 = $66 million
Cash flows of Technology Wi-Fi in Year 3=$42 million
To discuss: Recommendation to the CEO based on the above results.
Introduction: The profitability index is a budgeting technique that evaluates various investment proposals based on profitability.
Want to see the full answer?
Check out a sample textbook solution
Chapter 5 Solutions
Loose Leaf for Corporate Finance Format: Loose-leaf
- (d) Estimate the value of a share of Cisco common stock using the discounted cash flow (DCF) model as of July 27, 2019 using the following assumptions Assumptions Discount rate (WACC) Common shares outstanding 7.60% 5,029.00 million Net nonoperating obligations (NNO) $(8,747) million NNO is negative, which means that Cisco has net nonoperating investments CSCO ($ millions) DCF Model Reported 2019 Forecast Horizon 2020 Est. 2021 Est. 2022 Est. 2023 Est. Terminal Period Increase in NOA FCFF (NOPAT - Increase in NOA) $ 1241 1303 1368 10673 11207 11767 1437 $ 12354 302 ✓ Present value of horizon FCFF 9918 9679 9445 ✔ 0 × Cum. present value of horizon FCFF $ 0 × Present value of terminal FCFF 0 ☑ Total firm value 0 ☑ NNO -8747 ✓ Firm equity value $ 0 ☑ Shares outstanding (millions) 5029 Stock price per share $ 40.05arrow_forwardDon't used hand raiting and don't used Ai solutionarrow_forwardDon't used hand raiting and don't used Ai solutionarrow_forward
- Don't used Ai solution and don't used hand raitingarrow_forwardQ1: Blossom is 30 years old. She plans on retiring in 25 years, at the age of 55. She believes she will live until she is 105. In order to live comfortably, she needs a substantial retirement income. She wants to receive a weekly income of $5,000 during retirement. The payments will be made at the beginning of each week during her retirement. Also, Blossom has pledged to make an annual donation to her favorite charity during her retirement. The payments will be made at the end of each year. There will be a total of 50 annual payments to the charity. The first annual payment will be for $20,000. Blossom wants the annual payments to increase by 3% per year. The payments will end when she dies. In addition, she would like to establish a scholarship at Toronto Metropolitan University. The first payment would be $80,000 and would be made 3 years after she retires. Thereafter, the scholarship payments will be made every year. She wants the payments to continue after her death,…arrow_forwardCould you please help explain what is the research assumptions, research limitations, research delimitations and their intent? How the research assumptions, research limitations can shape the study design and scope? How the research delimitations could help focus the study and ensure its feasibility? What are the relationship between biblical principles and research concepts such as reliability and validity?arrow_forward
- What is the concept of the working poor ? Introduction form. Explain.arrow_forwardWhat is the most misunderstanding of the working poor? Explain.arrow_forwardProblem Three (15 marks) You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock NEWER Inc. just paid a dividend of $6.00. The dividend is expected to increase by 60%, 45%, 30% and 15% per year, respectively, in the next four years. Thereafter, the dividend will increase by 4% per year in perpetuity. Calculate NEWER’s expected dividend for t = 1, 2, 3, 4 and 5. The required rate of return for NEWER stock is 14% compounded annually. What is NEWER’s stock price? The second stock is OLDER Inc. OLDER Inc. will pay its first dividend of $10.00 three (3) years from today. The dividend will increase by 30% per year for the following four (4) years after its first dividend payment. Thereafter, the dividend will increase by 3% per year in perpetuity. Calculate OLDER’s expected dividend for t = 1, 2, 3, 4, 5, 6, 7 and 8. The required rate of return for OLDER stock is 16% compounded annually. What is OLDER’s stock price? Now assume that…arrow_forward
- Problem Three (15 marks) You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock NEWER Inc. just paid a dividend of $6.00. The dividend is expected to increase by 60%, 45%, 30% and 15% per year, respectively, in the next four years. Thereafter, the dividend will increase by 4% per year in perpetuity. Calculate NEWER’s expected dividend for t = 1, 2, 3, 4 and 5. The required rate of return for NEWER stock is 14% compounded annually. What is NEWER’s stock price? The second stock is OLDER Inc. OLDER Inc. will pay its first dividend of $10.00 three (3) years from today. The dividend will increase by 30% per year for the following four (4) years after its first dividend payment. Thereafter, the dividend will increase by 3% per year in perpetuity. Calculate OLDER’s expected dividend for t = 1, 2, 3, 4, 5, 6, 7 and 8. The required rate of return for OLDER stock is 16% compounded annually. What is OLDER’s stock price? Now assume that…arrow_forwardYour father is 50 years old and will retire in 10 years. He expects to live for 25 years after he retires, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $45,000 has today. (The real value of his retirement income will decline annually after he retires.) His retirement income will begin the day he retires, 10 years from today, at which time he will receive 24 additional annual payments. Annual inflation is expected to be 4%. He currently has $240,000 saved, and he expects to earn 8% annually on his savings. Required annuity payments Retirement income today $45,000 Years to retirement 10 Years of retirement 25 Inflation rate 4.00% Savings $240,000 Rate of return 8.00% Calculate value of…arrow_forwardProblem Three (15 marks) You are an analyst in charge of valuing common stocks. You have been asked to value two stocks. The first stock NEWER Inc. just paid a dividend of $6.00. The dividend is expected to increase by 60%, 45%, 30% and 15% per year, respectively, in the next four years. Thereafter, the dividend will increase by 4% per year in perpetuity. Calculate NEWER’s expected dividend for t = 1, 2, 3, 4 and 5. The required rate of return for NEWER stock is 14% compounded annually. What is NEWER’s stock price? The second stock is OLDER Inc. OLDER Inc. will pay its first dividend of $10.00 three (3) years from today. The dividend will increase by 30% per year for the following four (4) years after its first dividend payment. Thereafter, the dividend will increase by 3% per year in perpetuity. Calculate OLDER’s expected dividend for t = 1, 2, 3, 4, 5, 6, 7 and 8. The required rate of return for OLDER stock is 16% compounded annually. What is OLDER’s stock price? Now assume that…arrow_forward
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning