Week 3- Discussion Forum 2

A hospital administrator is faced with the problem of having a limited amount of funds available for capital projects. He has narrowed his choice down to two pieces of x-ray equipment, since the radiology department is his greatest producer of revenue. The first piece of equipment (Project A) is a fairly standard piece of equipment that has gained wide acceptance and should provide a steady flow of income. The other piece of equipment (Project B), although more risky, may provide a higher return. After deliberation with his radiologist and director of finance, the administrator has developed the following table: Discovering that the budget director of the hospital is taking courses in engineering, the hospital administratorhas asked him to analyze the two projects and make his recommendation. Prepare an analysis that will aid the budget director in making his recommendation. In this problem, do risk and reward travel in the same direction?

For businesses to continuously sustain in the competitive market, they need to expand their operations to relevant new dimensions. For this, they have to go for expansion, replacement and renewal of their capital assets. With regards to these situations, organizations need to deploy long term capital, and they have to decide in which of the alternatives they should fund. This scenario initiates the concept of capital budgeting.Required(a) Outline three (3) advantages and three (3) disadvantages of capital budgeting.(b) There are a number of capital budgeting techniques available. List four of the methods used.

In this comprehensive paper, assume you are working with the accounting department in your organization to make a decision regarding a capital investment you feel is needed to improve productivity in your department.  The organization has limited resources and you are trying to prove why your department needs the resources more than other departments in the company. Provide an example of a possible capital investment to use in your argument to management that will be used throughout your paper. Give some examples of the types of non-financial factors that managers would consider in this decision that are more important in today's capital investment decisions than they were in the past.

Of the following choices, which one is an example of erosion and should be included in a capital project analysis? Multiple Choice The sudden loss of sales due to a major employer in your community implementing massive layoffs. The reduction in sales that occurs when a competitor introduces a new product. The reduction in sales price that will most likely be required to sell inventory that has aged. The anticipated loss of current sales when a new product is launched. The expected decline in sales as the market for a product becomes saturated.

During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to makemany capital investments. Recently, though, capital costs have been declining, and the company has decidedto look seriously at a major expansion program proposed by the marketing department. Assume that you arean assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’s cost ofcapital. Jones has provided you with the following data, which she believes may be relevant to your task:(1) The firm’s tax rate is 40%.(2) The current price of Harry Davis’s 12% coupon, semi-annual payment, noncallable bonds with 15 yearsremaining to maturity is $1,225.72. Harry Davis does not use short-term interest-bearing debt on a permanentbasis. New bonds would be privately placed with no flotation cost.(3) The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $117.Harry Davis would incur flotation costs equal…

you are working with the accounting department in your organization to make a decision regarding a capital investment you feel is needed to improve productivity in your department.  The organization has limited resources and you are trying to prove why your department needs the resources more than other departments in the company. Provide an example of a possible capital investment to use in your argument to management.

What is your present understanding of the short-term versus long-term financial needs of an organization? What might be some short-term financial needs of an organization? What might be some long-term financial needs of an organization? Why might these different types of needs be important to an organization’s success and overall financial health?

Capital investments can be very risky; they are usually long-term decisions that require large sums of cash.  Since every department will want capital improvements and cash is usually scarce, it is imperative that management make the right decisions. When determining the minimum required rate of return, what should management consider? What qualitative factors should also go into the decision?

A finance director has been asked to explain various methods of project appraisal to his board colleagues. The operations director has already explained to the maring director that: The payback method is a good evaluation tool as it takes into account the liquidity of an individual project The Internal Rate of Return (IRR) calculation is irrelevant as the company does not need to borrow funds for its future projects (1) (2) (3) (4) The Net Present Value (NPV) method is too complicated as various discount rates have to be tried until a zero NPV can be found The Accounting Rate of Return (ARR) would be a good method after the audited accounts are completed and the company's profit margin can be ascertained The finance director has decided he should first inform the managing director that his board colleague has not accurately explained the alternatives, as DA. only statement (1) is true B. only statement (2) is true only statement (3) is true one of the statements are true

During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’ cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: •The firm’s tax rate is 35%. •The current price of Harry Davis’ 12.5% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1105.67. Harry Davis does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. •The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $114.27. Harry Davis would incur flotation costs…

During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’ cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: •The firm’s tax rate is 35%. •The current price of Harry Davis’ 12.5% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1105.67. Harry Davis does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. •The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $114.27. Harry Davis would incur flotation costs…

During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’ cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: •The firm’s tax rate is 35%. •The current price of Harry Davis’ 12.5% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1105.67. Harry Davis does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. •The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $114.27. Harry Davis would incur flotation costs…

During the last few years, Harry Davis Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Harry Davis’ cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: •The firm’s tax rate is 35%. •The current price of Harry Davis’ 12.5% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1105.67. Harry Davis does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. •The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $114.27. Harry Davis would incur flotation costs…

During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new…

During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new…

During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new…

During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task: The firm’s tax rate is 40%. The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost. The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. Jana would incur flotation costs equal to 5% of the proceeds on a new…