Chapter 11, Question 4 Apply WACC in IRR. Leeward Sailboats is reviewing the following new boat line:Click on the Icon a in order to copy its content into a spreadsheet.CategoryToT1T2T3Investment- $9,127,216Net working capital changeOperating cash flowSalvage- $720,000$720,000$4,231,000$2,814,000$3,492,000$685,000At what adjusted WACCS will the company accept this project? Hint: Find the IRR of the project, and use it as the maximum adjusted WACC for accepting the project.What is the IRR of the project?% (Round to two decimal places.)At what adjusted WACCS will the company accept this project? (Select the best response.)O A. The company will accept this project if the adjusted WACC is greater than the IRR calculated above.O B. The company will accept this project if the adjusted WACC is no more than the IRR calculated above.

To find the IRR, we need to solve the following equation: $0 = -9847216 + $2814000 / (1+IRR) +…

What is the IRR of the project? % (Round to two decimal places.) At what adjusted WACCS will the company accept this project? (Select the best response.) O A. The company will accept this project if the adjusted WACC is greater than the IRR calculated above. O B. The company will accept this project if the adjusted WACCC is no more than the IRR calculated above.

What is the IRR of the project? % (Round to two decimal places.) At what adjusted WACCS will the company accept this project? (Select the best response.) O A. The company will accept this project if the adjusted WACC is greater than the IRR calculated above. O B. The company will accept this project if the adjusted WACCC is no more than the IRR calculated above.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Apply WACC in IRR. Leeward Sailboats is reviewing the following new boat line: Category T0 T1 T2 T3 Investment −$9,116,807 Net working capital change −$636,000 $636,000 Operating cash flow $2,930,000 $3,413,000 $4,156,000 Salvage $597,000 At what adjusted WACCs will the company accept this project? Hint: Find the IRR of the project, and use it as the maximum adjusted WACC for accepting the project. What is the IRR of the project? (Round to two decimal places.)
QUESTION 1 Read the following passage and answer the questions that follow:DIDO (Pvt) Ltd is a data management company operating in Palapye in Botswana. You are the financial manager for this company and the management has requested you to present a paper on short term financial management issues. DIDO (Pvt) Ltd has a permanent funding requirement of P135 000 in operating assets and seasonal funding requirements that vary between P0 and P990 000 and average P101 250. If the company can borrow short term funds at 6.25% and long term funds at 8%, and it can earn 5% on the investment of any surplus balances.The company has annual sales of P10 million, a cost of goods sold of 75% of sales, and purchases that are 65% of cost of goods sold. The company has an Average Age Inventory of 60 days, an Average Collection Period of 40 days and an Average Payment Period of 35 days.Required: a. Calculate the company’s cash conversion cycle. b. Calculate the annual cost of an aggressive strategy for…
Social Media, Inc. (SMI) has two services for users. Toot!, which connects tutors with students who are looking for tutoring services, and TIX, which can be used to buy, sell, or exchange event tickets. For the following year, SMI expects the following results. Toot! Tix Total Users 15,500 22,100 37,600 Revenues $2,000,000 $2,080,000 $4,080,000 Engineering hours 10,4000 8,400 18,800 Engineering cost $ 881,000 $ 999,000 $1,880,000 Administrative costs…
Social Media, Inc. (SMI) has two services for users. To ot!, which connects tuters with students who are looking for tutoring services, and TiX, which can be used to buy, sell, or exchange event tickets. For the following year, SMI expects the following results. Toot! TiX Total Users 13,100 20,100 33,200 Revenues $ 1,800,000 $ 1,760,000 $ 3,560,000 Engineering hours 9,300 7,300 16,600 Engineering cost $ 687,750 $ 806,250 $ 1,494,000 Administrative costs $ 1,195,200 Required: a. Compute the predetermined overhead rate used to apply administrative costs to the two services assuming SMI uses the number of users to allocate administrative costs. b. Based on the rates computed in requirement (a), what is the profit for each service?
The Dammon Corp. has the following investment opportunities: Machine A Machine B Machine C ($10,000 cost) ($22,500 cost) ($35,500 cost) Inflows Inflows Inflows year 1 $ 6,000 year 1 $ 12,000 year 1 $ -0- year 2 3,000 year 2 7,500 year 2 30,000 year 3 3,000 year 3 1,500 year 3 5,000 year 4 -0- year 4 1,500 year 4 20,000 Under the payback method and assuming these machines are mutually exclusive, which machine(s) would Dammon Corp. choose?
Social Media, Inc. (SMI) has two services for users. Toot!, which connects tutors with students who are looking for tutoring services, and TiX, which can be used to buy, sell, or exchange event tickets. For the following year, SMI expects the following results. Toot! TiX Total Users 15,500 22,100 37,600 Revenues $ 2,000,000 $ 2,080,000 $ 4,080,000 Engineering hours 10,400 8,400 18,800 Engineering cost $ 881,000 $ 999,000 $ 1,880,000 Administrative costs $ 1,504,000 The company is considering using a two-stage cost allocation system and wants to assess the effects on reported product profits. The company is considering using Engineering Hours and Users as the allocation base. Additional information follows. Toot! TiX Total Engineering hours 10,400 8,400 18,800 Users 15,500 22,100 37,600 Engineering-hour related administrative cost $ 199,280 User-related…
Social Media, Inc. (SMI) has two services for users. Toot!, which connects tutors with students who are looking for tutoring services, and TiX, which can be used to buy, sell, or exchange event tickets. For the following year, SMI expects the following results. Toot! TiX Total Users 12,500 19,600 32,100 Revenues $ 1,750,000 $ 1,460,000 $ 3,210,000 Engineering hours 12,200 8,200 20,400 Engineering cost $ 295,000 $ 415,000 $ 710,000 Administrative costs $ 1,123,500 Required: a. Compute the predetermined overhead rate used to apply administrative costs to the two services assuming SMI uses the revenue to allocate administrative costs. b. Based on the rates computed in requirement (a), what is the profit for each service?
Social Media, Inc. (SMI) has two services for users. Toot!, which connects tutors with students who are looking for tutoring services, and TiX, which can be used to buy, sell, or exchange event tickets. For the following year, SMI expects the following results. Toot! TiX Total Users 10,700 18,100 28,800 Revenues $ 1,600,000 $ 1,440,000 $ 3,040,000 Engineering hours 8,200 6,200 14,400 Engineering cost $ 516,500 $ 635,500 $ 1,152,000 Administrative costs $ 921,600 Required: Compute the predetermined overhead rate used to apply administrative costs to the two services assuming SMI uses the number of usersto allocate administrative costs. Based on the rates computed in requirement (a), what is the profit for each service?
Working with your assigned group, please determine your answer to the questions below. We will discuss your group's responses during the live session this week. Consider the following two mutually exclusive projects: Year Cash Flow ($) - A Cash Flow ($) - B 0 -4,55,000 -65,000 1 58,000 31,000 2 85,000 28,000 3 85,000 25,500 4 5,72,000 19,000 Whichever project you choose, if any, you require a return of 11% on your investment. If you apply the payback criterion, which investment will you choose? If you apply the discounted payback criterion, which investment will you choose? If you apply the NPV criterion, which investment will you choose? If you apply the IRR criterion, which investment will you choose? If you apply the profitability index criterion, which investment will you choose? Based on your answers, which project will you finally choose?
For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. Company A is considering the purchase of a building it currently leases for $50,000 per year. The owner of the building put it up for sale at a price of $170,000, but because the firm has been a good tenant, the owner offered to sell it to the company for a cash price of $150,000 now. If purchased now, how long will it be before the company recovers its investment at an interest rate of 10% per year?
he capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Year Robotic AssemblerOperating Income Robotic AssemblerNet Cash Flow WarehouseOperating Income WarehouseNet Cash Flow 1 $50,400 $157,000 $106,000 $251,000 2 50,400 157,000 81,000 212,000 3 50,400 157,000 40,000 149,000 4 50,400 157,000 18,000 102,000 5 50,400 157,000 7,000 71,000 Total $252,000 $785,000 $252,000 $785,000 Each project requires an investment of $480,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 10% for purposes of the net present value analysis. Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8…
Cranston LTD. prepares its financial statements according to International Financial Reporting Standards. InOctober 2018, the company received a $2 million government grant. The grant represents 20% of the total cost ofequipment that will be used to improve the roads in the local area. Cranston recorded the grant and the purchaseof the equipment as follows:Cash ................................. 2,000,000Revenue....................... 2,000,000Equipment....................... 10,000,000Cash ............................. 10,000,000Required:1. Explain the alternative accounting treatments available to Cranston for accounting for this government grant.2. Prepare any necessary correcting entries under each of the alternatives described in requirement 1.

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