d. From your answers to parts a-c, which project would be selected? -Select- If the WACC was 18%, which project would be selected? -Select- e. Construct NPV profiles for Projects A and B. If an amount is zero, enter 0. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest cent. Discount Rate NPV Project A NPV Project B 0% $ 2$ 10 12 15 18.1 23.01 f. Calculate the crossover rate where the two projects' NPVS are equal. Do not round intermediate calculations. Round your answer to two decimal places. %
Q: A cotton buyer will be making a purchase of 245,000 pounds of cotton on March 1. The buyer…
A: Futures are used for hedging the cash market so that if prices rises than some loss may be prevented…
Q: 2.Last month The Sweet Tooth Candy Shops had total sales, including sales tax, of $51,889. The…
A: a) Sales Revenue Given, Sales are inclusive of Sales Tax of 7.5% So, Sales are 100% and Sales tax…
Q: Expenses 37,575 30,82 ome 556,425 390,1:
A: Since in the given case, we have concluded on the basis of given information about the investment…
Q: A car costing $ 48182 is purchased with a 25% down payment and further payments of X at the…
A: Loan refers to the amount provided to financial transaction where amount is provided to a person…
Q: The trend for cost of goods sold is it is decreasing as a percentage of sales and the trend for…
A: Correct answer is option 2.
Q: A stock has a current price of $116. An option on this stock that expires in six months has an…
A: Here, Current Price is $116 Strike Price is $115 Risk Free Rate is 5% Volatility is 30% Time to…
Q: A loan of $14,000 with interest at 12% compounded quarterly is repaid in 8 years by equal payments…
A: Loan Amount = $14,000 Interest compounded quarterly = 12% Calculating interest for semi-annual…
Q: FRANCORP is preparing budgets for the quarter ending March 31. Budgeted sales for the next 5 months…
A: Financial budgets ae prepared by corporate entities for making financial plans and policies for the…
Q: Briefly explain the following by providing the meaning of the concept and list 2 benefits for each…
A: The Financial Accounting Rules Board publishes a collection of accounting principles, standards, and…
Q: Charlie Corporation is a chemical company. The company issued an outstanding bond with a P100,000…
A: Par value of bond (FV) = P100,000 Coupon rate = 8% Quarterly coupon amount (C) = 100,000*0.08/4 =…
Q: Suppose that a car was purchased with the buyer taking out a 7 year, $35,000 car loan at 6% interest…
A: Loans are paid by monthly equated payments that carry the payment of interest and payment of…
Q: Assume that Greenwich and Pizza Hut have similar P100,000 par value bond issues outstanding. The…
A: A bond is a debt instrument through which a company raises capital. Like loans, it has to be repaid…
Q: Use the amortization table to determine how much of the Bth payment is interest m Click the icon to…
A: Amortization Table refers to a complete table that shows the periodic payment of a loan amount along…
Q: Ms. Rahat hails from a business family. She is considering starting a supermarket with an investment…
A: The IRR is one of the methods of finding the profitability of a project. It is the rate at which the…
Q: 2. Mike purchases a bicycle costing $176.90. State taxes are 4% and local sales taxes are 3%. The…
A: The total price paid to buy a good is known as the purchase price. It includes list price, taxes,…
Q: I ONLY NEED #2 Solved. Questions 1 and 2 are connected, I only need #2 The rights to Michael…
A: 2. Year 1 2 3 4 5 Annual Casl Flow $ 3,50,000.00 $ 3,80,000 $…
Q: Spiller Corporation plans to isue 12%, 8 year, $520,000 par value bonds payable that pay interest…
A: Total cash proceeds from bond: The face value of a bond is the amount you will get when the bond…
Q: hat is the contribution of fintech in developing a single financial market?
A: Fintech is the use of technology and computer and internet for the field of finance and banking and…
Q: Solve it correctly not use excel Q)Mr. Real borrows P200,000 at 15% compounded annually, agreeing…
A: Loans are paid by equal annual instalments that carry the payment for principal amount and interest…
Q: Discuss the concepts of over- and understoring and describe their relationship to the Index of…
A: The Index of Retail Saturation (IRS) is the ratio of available supply to demand for a product…
Q: How much is the sum of the present value of the expected return over those periods
A: Cash Flows (Year 1-10) (CF) = $15,000 per year Annual interest rate (r) = 5% Time Period (t) = 10…
Q: Using the data in the following table, estimate the average return and volatility for each stock.…
A: Return of stock A = Average return of stock "A" from 2008 to 2013
Q: You are asked to invest $30 million in a bond portfolio consisting of only two bonds. Bond A has a…
A: Concept. Bond duration is way of measuring how much bond prices are likely to change if there is…
Q: d short 700 shares of XYZ Company at $43 per share. The initial margin requirement was 60%. (The…
A: Shares are bought and sold on the basis of some margin and some loan from broker and they are…
Q: 10. Calculate the property tax rate required to meet the budgetary demands of the community. Note:…
A: The tax paid on the sale and purchase of property is known as property tax. It is levied and…
Q: You bought a stock one year ago for $51.46 per share and sold it today for $57.76 per share. It palu…
A: Total return from a stock is divided into two components. The first one is due to the dividend…
Q: ave $375,000 in cash, and you decide to borrow another $63,750 at a 7% interest rate to invest in…
A: The overall return earned over a duration of time from owning an asset or a portfolio of assets is…
Q: You expect that Flex Industries (FI) will have earnings per share of $2 this year and that they will…
A: The growth rate in dividends is directly based on the investment made and return earned on the same.…
Q: If the required return on this stock is 16 per cent, what is the current share price?
A: The stock can be valued using the Gordon Dividend model. As per the Gordon model, the value of a…
Q: Clark and Lana take a 30-year home mortgage of $122,000 at 7.4%, compounded monthly. They make their…
A: Loans are to be paid by the monthly payment that carry the payment for interest and also payment of…
Q: LO1 Show the reasons why the net present value criterion is the best way to evaluate proposed…
A: Since you have posted a question with multiple questions, we will solve the first one for you. If…
Q: A student has a total of $3,000.00 in student loans that will be paid with a 48-month installment…
A: Given That: Student Loan(P)=$3000 n=48 Monthly payment (PMT)=$73.94
Q: Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the…
A: As per the honor code only 1 question needs to be solved. hence 1st question is solved
Q: Q2. Carlos and Martha wanted to ensure that they had $100,000 for their child's future plans. As…
A: Effective annual rate: Because compounding effects are taken into account, the effective annual…
Q: 2. The company is considering a project involving the purchase of new equipment. Change the data…
A: Here,
Q: Income tax is levied on all of the following taxable items except: O Wages O Interest and dividends…
A: Income tax is levied on Wages, Interest and dividends from moeny invested and Capital gains from…
Q: An investor wants to earn a minimum return of 2.5% over the next 5 years. He doesn't want to take…
A: A portfolio manager is a professional who makes financial decisions and manages investments on…
Q: Can you please help me solve for the Return on Investment and Break-Even Point based on the data…
A: Return on Investment measures of the performance of an Investment. It tells us the return we have…
Q: The after-tax cost of debt of Company XYZ Ltd is 4.5%. The systematic risk of its equity is twice…
A: After-tax cost of debt is 4.5% Market Beta is 1 Beta of Firm = 2* market Beta = 2 Risk free rate is…
Q: Joel is considering putting a $2200 laptop purchase on his credit card, which has an interest rate…
A: The number of payments can be calculated with the help of NPER function of Excel
Q: Capacity Use and External Financing. If Growth Industries from Problem 13 is operating at only 75%…
A: Given: Particulars Amount Liabilities $10,000 Net income $31,600 Sales $200,000 Total…
Q: 7. 2016 2015 Industry DR 29.0% 33.5% 43.3% TIE 6.6x 2.6x 4.0x What is your…
A: The ratios are used in relative valuation of entity which is done with the help of industry average…
Q: There is an insurance plan worth $4,000 , which will return $2,200 per year for the next two years…
A: Present Value: The present value is the value of cash flow stream or the fixed lump sum amount at…
Q: Using the same begging portion of the above problem -- A cotton buyer will be making a purchase of…
A: The cash market and future market are interrelated to each but both moves in opposite directions so…
Q: ._______ An offer to purchase the stock of a firm targeted for acquisition.
A: Step 1 A takeover bid is a business transaction in which one firm bid to buy another. The target…
Q: ve Php 100 a month you can deposit into an account earning 3.9% APR, compounded monthly. How long…
A: As there is more compounding the more is the interest rate and more is the accumulation of interest…
Q: A coupon bond will make 20 annual coupon payments of $2,000 each and will pay a face value of…
A: Bonds are the debt securities which are issued by the corporations or the government to raise the…
Q: The current ratio of a company is 6:1 and its acid-test ratio is 1:1. If the inventories and prepaid…
A: Current Liabilities: These are liabilities that are due in less than a year and are expected to pay…
Q: Q5. At 5% annual interest, what is the difference in the present and future value of P100 paid at…
A: Given, Payment is P100 Rate is 5% Term is 10 years
Q: Alternative E1 E2 Capital investment Annual expenses Useful life (years) Market value (at end of…
A: Concept . Future worth method is used in an investment situation where we need to compute the…
D, E, F, G, need to be solved
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 6 images
- OPTIMAL CAPITAL BUDGET Hampton Manufacturing estimates that its VVACC is 125%. The company is considering the following 7 investment projects: Project Size IRR A 750,000 14.0% B 1,250,000 13.5 C 1,250,000 13.2 D 1,250,000 13.0 E 750,000 12.7 F 750,000 12.3 G 750,000 12.2 a. Assume that each of these projects is independent and that each is just as risky as the firms existing assets. Which set of projects should be accepted, and what is the firms optimal capital budget? b. Now assume that Projects C and D are mutually exclusive. Project D has an NPV of 400,000, whereas Project C has an NPV of 350,000. Which set of projects should be accepted, and what is the firms optimal capital budget? c. Ignore part b and assume that each of the projects is independent but that management decides to incorporate project risk differentials. Management judges Projects B, C, D, and E to have average risk. Project A to have high risk, and Projects F and G to have low risk. The company adds 2% to the WACC of those projects that are significantly more risky than average, and it subtracts 2% from the WACC of those projects that are substantially less risky than average. Which set of projects should be accepted, and what Is the firms optimal capital budget?OPTIMAL CAPITAL BUDGET Hampton Manufacturing estimates that its WACC is 125%. The company is considering the following seven investment projects: Project Size IRR A 750,000 14.0% B 1,250,000 13.5 C 1,250,000 13.2 D 1,250,000 13.0 E 750,000 12.7 F 750,000 12.3 G 750,000 12.2 a. Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted, and what is the firm's optimal capital budget? b. Now assume that Projects C and D are mutually exclusive. Project D has an NPV of 400,000, whereas Project C has an NPV of 350,000. Which set of projects should be accepted, and what is the firm's optimal capital budget? c. Ignore Part b and assume that each of the projects is independent but that management decides to incorporate project risk differentials. Management judges Projects B, C, D, and E to have average risk; Project A to have high risk; and Projects F and G to have low risk. The company adds 2% to the WACC of those projects that are significantly more risky than average, and it subtracts 2% from the WACC of those projects that are substantially less risky than average. Which set of projects should be accepted, and what is the firm's optimal capital budget?Capital rationing decision for a service company involving four proposals Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: Investment Year Income from Operations Net Cash Flow Proposal A: 450,000 1 30,000 120,000 2 30,000 120,000 3 20,000 110,000 4 10,000 100,000 5 (30,000) 60,000 60,000 510,000 Proposal B: 200,000 1 60,000 100,000 2 40,000 80,000 3 20,000 60,000 4 (10,000) 30,000 5 (20,000) 20,000 90,000 290,000 Proposal C: 320,000 1 36,000 100,000 2 26,000 90,000 3 26,000 90,000 4 16,000 80,000 5 16,000 80,000 120,000 440,000 Proposal D: 540,000 1 92,000 200,000 2 72,000 180,000 3 52,000 160,000 4 12,000 120,000 5 (8,000) 100,000 220,000 760,000 The companys capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals. Instructions 1. Compute the cash payback period for each of the four proposals. 2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place. 3. Using the following format, summarize the results of your computations in parts (1) and (2). By placing the calculated amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should lie accepted for further analysis and which should be rejected. Proposal Cash Payback Period Average Rate of Return Accept for Further Analysis Reject A E C D 4.For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value of 1 table appearing in this chapter (Exhibit 2). 5.Compute the present value index for each of the proposals in part (4). Round to two decimal places. 6.Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4). 7.Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). 8.Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).
- Capital rationing decision for a service company involving Clearcast Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows: The company's capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals. Instructions 1. Compute the cash payback period for each of the four proposals. 2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place. 3. Using the following format, summarize the results of your computations in parts (1) and (2). By placing the calculated amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should be accepted for further analysis and which should be rejected. 4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value of 1 table appearing in this chapter (Exhibit 2). 5. Compute the present value index for each of the proposals in part (4). Round to two decimal places. 6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4). 7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). Round to two decimal places. 8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).Capital rationing decision for a service company involving four proposals Renaissance Capital Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follow: Investment Year Income from Operations Net Cash Flow Proposal A: 680,000 1 64,000 200,000 2 64,000 200,000 3 64,000 200,000 4 24,000 160,000 5 24,000 160,000 240,000 920,000 Proposal B: 320,000 1 26,000 90,000 2 26,000 90,000 3 6,000 70,000 4 6,000 70,000 5 (44,000) 20,000 20,000 340,000 Proposal C: 108,000 1 33,400 55,000 2 31,400 53,000 3 28,400 50,000 4 25,400 47,000 5 23,400 45,000 142,000 250,000 Proposal D: 400,000 1 100,000 180,000 2 100,000 180,000 3 80,000 160,000 4 20,000 100,000 5 0 80,000 300,000 700,000 The companys capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals. Instructions 1.Compute the cash payback period for each of the four proposals. 2.Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to one decimal place. 3.Using the following format, summarize the results of your computations in parts (1) and (2). By placing the calculated amounts in the first two columns on the left and by placing a check mark in the appropriate column to the right, indicate which proposals should be accepted for further analysis and which should be rejected. Proposal Cash Payback Period Average Rate of Return Accept for Further Analysis Reject A B C D 4.For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of 1 table appearing in this chapter (Exhibit 2). 5.Compute the present value index for each of the proposals in part (4). Round to two decimal places. 6.Rank the proposals from most attractive to least attractive, based oil the present values of net cash flows computed in part (4). 7.Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). 8.Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).Ch. 6. Capital Budgeting with Inflation. For questions 7 and 8 use the following information. Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0 -$60,000 -$75,000 1 $38,000 $40,000 2 $36,000 $42,000 3 $29,000 $46,000 The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 12 percent and the inflation rate is 3 percent. What is the NPV for Project A?
- Ch. 6. Capital Budgeting with Inflation. For questions 7 and 8 use the following information. Consider the following cash flows on two mutually exclusive projects: Year Project A Project B 0 -$60,000 -$75,000 1 $38,000 $40,000 2 $36,000 $42,000 3 $29,000 $46,000 The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 12 percent and the inflation rate is 3 percent. What is the NPV for Project B? Round to the nearest cent and format as "XX,XXX.XX"eBook Problem 22-11 Investments Quick and Slow cost $1,000 each, are mutually exclusive, and have the following cash flows. The firm’s cost of capital is 7 percent. Cash Inflows Q S Year 1 $1,100 $309 2 — 309 3 — 309 4 — 309 According to the net present value method of capital budgeting, which investment(s) should the firm make? Use Appendix B and Appendix D to answer the question. Use a minus sign to enter negative values, if any. Round your answers to the nearest cent. NPV (Investment Quick): $ NPV (Investment Slow): $ The firm should make investment(s) . According to the internal rate of return method of capital budgeting, which investment(s) should the firm make? Use Appendix D to answer the question. Round your answers to the nearest whole number. IRR (Investment Quick): % IRR (Investment Slow): % The firm should make investment(s) . If Q is chosen, the $1,100 can be reinvested and earn 8 percent. Does this information…Exercise 14-11 (Algo) Preference Ranking of Investment Projects [LO14-5] Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Project InvestmentRequired PresentValue of Cash Inflows Life oftheProject(years) InternalRateof Return A $ 180,000 $ 224,323 7 21% B $ 151,000 $ 197,000 12 18% C $ 102,000 $ 155,035 7 17% D $ 161,000 $ 233,136 3 16% The net present values should be computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth. Required: 1. Compute the profitability index for each project. 2. In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return.
- Exercise 8-17 (Static) Cash Flows; Budgeted Income Statement and Balance Sheet [LO8-2, LO8-3, LO8-4, LO8-9, LO8-10] Wheeling Company is a merchandiser that provided a balance sheet as of September 30 as shown below: Wheeling CompanyBalance SheetSeptember 30 Assets Cash $ 59,000 Accounts receivable 90,000 Inventory 32,400 Buildings and equipment, net of depreciation 214,000 Total assets $ 395,400 Liabilities and Stockholders’ Equity Accounts payable $ 73,000 Common stock 216,000 Retained earnings 106,400 Total liabilities and stockholders’ equity $ 395,400 The company is in the process of preparing a budget for October and has assembled the following data: Sales are budgeted at $240,000 for October and $250,000 for November. Of these sales, 35% will be for cash; the remainder will be credit sales. Forty percent of a month’s credit sales are collected in the month the sales are made, and the remaining 60% is collected in the following month. All…Capital Budgeting 29. A project which requires an investment of $540,000 is expected to generate $5,800 ofnet income in Year 1, $40,000 of net income in Year 2, and $100,000 of net income in Year 3 (Allnet income amounts are after taxes). What is the accounting rate of return for this investment?A. 27%B. 81%C. 9%D. 18% 30. A project that required a $420,000 investment generated no net income for the firstyear of operations, and a net income after taxes of $84,000 in the second year. What is theaccounting rate of return for this investment?A. 0%B. 15.9%C. 6.67%D. 20%3 QS 24-1 (Algo) Payback period and equal cash flows LO P1 Park Company is considering an investment of $29,000 that provides net cash flows of $13,400 annually for four years. What is the investment's payback period? Numerator: Initial investment 1 Payback Period Denominator: Annual net cash flow Payback Period Payback period