Corporate Finance Core Principles and Applications Chapter 8

In analyzing the change in a firm's operating income from one year to the next, which of the following factors measures the change attributable solely to the change in the quantity of inputs spent in year 2 relative to the quantity of inputs that would have been used in year 1 to produce the year 2 output?

This four-credit course is for students who major in finance. By the end of this course,

Faculty and students/learners will be held responsible for understanding and adhering to all policies contained within the following two documents:

7. Opportunity costs refer to time, money, and other resources that are given up when a decision is made.  TRUE

For this course project, I have chosen Cisco Systems, Inc. and tried to do the DuPont analysis for this company. Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol (IP) based networking products and services related to the communications and information technology industry worldwide. Cisco also provides broad line of products for transporting data, voice, and video within buildings, across campuses, and around the world. Various products offered by Cisco are switching, NGN routing, collaboration portfolio integrating voice, video, data and mobile applications data center and other networking products. Cisco Systems has a market cap of $128.77 billion and is part of the technology sector and

Isolation Company has a debt–equity ratio of 0.80. Return on assets is 8.0 percent, and total equity is

The question that transcends the project is whether equity investors be sufficiently rewarded to justify there financing interests. The answer to this question is dependent

Life Cycle Costing (LCC) is an important economic analysis used in the selection of alternatives that impact both pending and future

Opportunity costs are a critical part of discounted cash flow analysis, the capital investment analysis, and it’s considered a tried-and-true economic principle. It is referred to as an alternative benefit a business could have received, but decided against due to an equal or better course of action. An example of where the economic concept of opportunity costs could be used in the analysis of a healthcare organization is if a large hospital were to receive a $100 donation. This hospital would like to improve the satisfaction of their employees and patients, hence the hospital decides to either add a colorful mural to a part of the hospital or some speakers for soothing, slow music. Each would cost the same but one of these options may attract

Generally, firms can choose among various capital structures in order to maximize overall market value of the company. It is proposed however, that

If the financing of the project comes partially from issuing debt and cash infusion from the owners, the available cash will increase without as much interest expense. This will cause the company books to look bad because of lower EPS, however the company will have a choice not to pay dividends if necessary rather than being bound to pay interest expense.

The cost of something is what you give up to get it. Opportunity cost is defined by

1. The cause to the conflict in the rankings is that while the IRR ranking shows a percentage so that you can see what percentage you are making on certain amount, it does not show the size of the project.

The advantages to a LLC are: 1) Reduction of personal liability. A sole proprietor has unlimited liability, which can include the potential loss of all personal assets. 2) Taxes. Forming an LLC may mean that more expenses can be considered business expenses and be deducted from the company’s income. 3) Improved credibility. The business may have increased credibility in the business world compared to a sole proprietorship. 4) Ability to attract investment. Corporations, even LLCs, can raise capital through the sale of equity. 5) Continuous life. Sole proprietorships have a limited life,

There are several weaknesses with these types of analysis. First, if inflation is expected then the replacement equipment will have a higher price. Also, the sales and operating costs will change meaning that the conditions built into the analysis would be invalid. Another difficulty that could be encountered is if the replacements that occur at a future date employ a different technology which would change the cash flows. This could be fixed in the replacement chain analysis, but not with the equivalent annual annuity approach. Lastly, it is very difficult to estimate the lives of projects so this may lead to speculations about the length of these projects. Consequently, due to all the uncertainties, managers for practical reasons will assume all projects to have the same life, but a problem will still exist if mutually exclusive projects have substantially different lives.