Concept explainers
a)
To modify: The capital budgeting model if most of two projects 3, 5, and 6 can be selected.
Introduction: The variation between the present value of the
b)
To modify: The capital budgeting model if investment 5 and 1 is selected.
Introduction: The variation between the present value of the cash outflows and the present value of the cash inflows are known as the Net Present Value (NPV).
c)
To modify: The capital budgeting model if one of investments 1 and 2 are selected.
Introduction: The variation between the present value of the cash outflows and the present value of the cash inflows are known as the Net Present Value (NPV).
d)
To modify: The capital budgeting model if investment 5, 3,and 4 are selected.
Introduction: The variation between the present value of the cash outflows and the present value of the cash inflows are known as the Net Present Value (NPV).
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Chapter 6 Solutions
Practical Management Science
- 9.3 Consider another set of net cash flows: Year Cash Flow ($) 0 2,000 1 2,000 2 0 3 1,500 4 2,500 5 4,000 What is the net present value of the stream if the opportunity cost of capital is 10 percent? What is the value of the stream at the end of year 5 if the cash flows are invested in an account that pays 10 percent annually? What cash flow today (time 0), in lieu of the $2,000 cash flow, would be needed to accumulate $20,000 at the end of year 5? (Assume that the cash flows for years 1 through 5 remain the same.)arrow_forwardThe residual dividend theory suggests that: a. Firms should pay dividends only if the net income is higher than firm capital needs b. Dividends should be paid if Net Income -Debt Ratio*Capital Budget is positive c. Dividend should be paid if Net Income - % Equity in Capital Structure*Capital Budget is greater than zero d. Dividends should be paid on the basis of a constant payout ratio e. Dividends should be paid if free cash flows to the firm are positivearrow_forwardPlease do not give solution in image formate thanku.arrow_forward
- Mr. King invested $30,000 in the First Eagle fund in year 2004. He continued to invest in the same fund from 2005 to 201 las in the following schedule: Year 2005 $30,000 Y ear 2006 $50,000 Year 2007 $50,000 Year 2008 $150,000 Year 2011 $100,000 All the dividends distributed by the company from time to time were reinvested in the same fund. In year 2012 Mr. King received a report showing a total balance of $548,360 in his account. What is the internal Rate of return of Mr. King's investments in the mutual fund? Answer: 7% (Note: cash flows in 2009 and 2010 are 0.) Show work in Excelarrow_forwardIf workers contribute to their group’s investments and decide on these investments, workers at different stages of their careers may want different types of capital, for example a durable building versus a temporary one. a. How might the age distribution of the workers make the building they choose to build too temporary or too durable? How can a building be too durable? b. There are also young and old shareholders. Why isn’t the choice of the building’s durability also a problem if they or an elected management makes the decision on it?arrow_forwardBudgeting for a Merchandising Firm Goldberg Company is a retail sporting goods store thatuses an accrual accounting system. Facts regarding its operations follow:∙ Sales are budgeted at $250,000 for December and $225,000 for January, terms 1/eom, n/60.∙ Collections are expected to be 50% in the month of sale and 48% in the month following the sale.Two percent of sales are expected to be uncollectible and recorded in an allowance account at theend of the month of sale. Bad debts expense is included as part of operating expenses.∙ Gross margin is 30% of gross sales.∙ All accounts receivable are from credit sales. Bad debts are written off against the allowanceaccount at the end of the month following the month of sale.∙ Goldberg desires to have 80% of the merchandise for the following month’s sales on hand at the endof each month. Payment for merchandise is made in the month following the month of purchase.∙ Other monthly operating expenses to be paid in cash total $25,000.∙ Annual…arrow_forward
- Over the next three years, the expected path of 1-year interest rates is 4, 1, and 1 percent, and the 1-yaer, 2-year, and 3-year term premia are 0, 1, and 2 percent, respectively. The liquidity premium theory of the term structure predicts that the yield curve Question 4 options: slopes upward. has a ^ shape. slopes downward. has a V shape.arrow_forwardPls help ASAP on botharrow_forwardYour father loans you Php12,000 to make it through your senior year. His repayment schedule requires payments of Php1401.95 at the end of year for the next 15 years. What interest rate? A. 7.0% B. 7.5% C. 8.0% D. 8.5%arrow_forward
- AYC Shoes just started to develop their own line of custom sneakers. The company has asked you, as a consultant, to prepare a financial plan that includes the following: 1. Variable and fixed expenses for the shoe manufacturing (you can find this information by researching other shoe companies, such as Nike, Adidas, Puma, etc.) 2. Based on the expenses that the organization will have, determine the price that they should sell the shoes for. 3. After deciding on the pricing scale and using the expenses you determined in Question #1, determine the break-even point for the organization. As a consultant, help this start-up company determine their costs and the break-even point.arrow_forwardMatch the following terms to their definitions: valuation, return on investment, discount rate, terminal value 1. The value of an investment at the end of an investment period 2. The return that investors expect to earn for putting their capital at risk 3. The amount of profit made on a given investment 4. An estimate of the economic worth of an asset or business a. Discount rate b. Valuation c. Return on investment d. Terminal valuearrow_forwardPls help ASAP for botharrow_forward
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