Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 11, Problem 11.31P
Ethics Problem Cash flow projections are a central component to the analysis of new investment ideas. In most firms, the person responsible for making these projections is not the same person who generated the investment idea in the first place. Why?
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Chapter 11 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 11.1 - Prob. 11.1RQCh. 11.1 - What three types of net cash flows may exist for a...Ch. 11.1 - Prob. 11.3RQCh. 11.1 - Prob. 11.4RQCh. 11.2 - Explain how to use each of the following inputs to...Ch. 11.2 - How do you calculate the book value of an asset?Ch. 11.2 - Prob. 11.7RQCh. 11.2 - Prob. 11.8RQCh. 11.3 - Prob. 11.9RQCh. 11.3 - Prob. 11.10RQ
Ch. 11.4 - Explain how the terminal cash flow is calculated...Ch. 11 - Book value, taxes, and initial investment Irvin...Ch. 11 - If Halley Industries reimburses employees who earn...Ch. 11 - Iridium Corp. has spent 3.5 billion over the past...Ch. 11 - Prob. 11.3WUECh. 11 - Prob. 11.4WUECh. 11 - Prob. 11.5WUECh. 11 - Prob. 11.1PCh. 11 - Net cash flow and time line depiction For each of...Ch. 11 - Replacement versus expansion cash flows Tesla...Ch. 11 - Sunk costs and opportunity costs Masters Golf...Ch. 11 - Prob. 11.5PCh. 11 - Prob. 11.6PCh. 11 - Prob. 11.7PCh. 11 - Book value and taxes on sale of assets Troy...Ch. 11 - Prob. 11.9PCh. 11 - Prob. 11.10PCh. 11 - Calculating initial investment Vastine Medical...Ch. 11 - Prob. 11.12PCh. 11 - Prob. 11.13PCh. 11 - Prob. 11.14PCh. 11 - Prob. 11.15PCh. 11 - Prob. 11.16PCh. 11 - Prob. 11.17PCh. 11 - Prob. 11.18PCh. 11 - Prob. 11.19PCh. 11 - Prob. 11.20PCh. 11 - Prob. 11.21PCh. 11 - Prob. 11.22PCh. 11 - Net cash flows for a marketing campaign Marcus...Ch. 11 - Net cash flows: No terminal value Central Laundry...Ch. 11 - Prob. 11.25PCh. 11 - Ethics Problem Cash flow projections are a central...
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- To make a capital investment decision, a manager must a. estimate the quantity and timing of cash flows. b. assess the risk of the investment. c. consider the impact of the investment on the firms profits. d. choose a decision criterion to assess viability of the investment (such as payback period or NPV). e. All of these.arrow_forwardMany businesses finance their investment activities internally. Should internal financing affect the efficiency with which the interest rate performs its functions? No, investment is profitable if the expected rate of return is greater than the rate of interest regardless of the source of funds. Yes, investment is profitable if the expected rate of return is greater than the rate of interest regardless of the source of funds. O No, because internal financing relies on a different profit calculation. Yes, because firms are usually more anxious about what happens to money that they do not have to pay back.arrow_forwardMastery Problem: Cash Payback and Average Rate of Return (Basic) Companies use capital investment analysis to evaluate long-term investments. Capital investment evaluation methods that do not use present values are (1) Average rate of return method and (2) Cash payback method. Methods That Do Not Use Present Value One category of capital investment evaluation methods does not use present value. The primary difference between the category of methods that do use present value and this category is that this category _________ (does/does not) take the time value of money into account. The basic premise of the time value of money is that a dollar today is worth __________ (less than, more than, the same as) a dollar tomorrow. True or False: Considering the fact that most firms use methods from each category, it can be concluded that both categories have value. ________ Cash Payback Method This method identifies how long it will take (in years) to recover the __________ (initial…arrow_forward
- The amount of time needed to recoup one's initial investment is referred to as the payback period, and it is also the amount of time required for an investor to reach the point when they are no longer losing money. Investments with shorter payback periods are considered more desirable, whereas those with longer payback periods are seen as less desirable. Imagine that you are the Chief Financial Officer. Critically evaluate the use of cash payback method (advantages and disadvantgaes) in determining the investment decisions with sufficient cash flow to ensure business sustainability in a competitive environment.arrow_forwardB) Analyze why, despite employing various investment appraisal techniques, large investment projects in big corporations may fail to deliver their estimated cash flows. Critically assess how a failed capital project may affect key stakeholders and shareholder value, and also shape the future strategy of investment capital.arrow_forward29. Which one of the following statements is correct regarding capital Investment appraisal methods?a) The Payback period takes into account all the cash flows accruing to the projectb) The Net Present value method does not take the time value of money into accountc) The Accounting Rate of Return takes the time value of cash flows into consideration and is the one most often used in practice by business organisationsd) The Internal Rate of Return is the discount rate at which the net present value is zeroarrow_forward
- The essence of capital budgeting and resource allocation is a search for good investments in which to place the firm's capital. The process can be simple when viewed in purely mechanical terms, but a number of subtle issues can obscure the best investment choices. The capital-budgeting analyst, therefore, is necessarily a detective who must winnow bad evidence from good. Much of the challenge is in knowing what quantitative analysis to generate in the first place. Suppose you are a new capital-budgeting analyst fr a company considering investments in the eight projects listed in Exhibit 1. The CFO of your company has asked you to rank the projects and recommend the "four best" that the company should accept. In this assignment, only the quantitative considerations are relevant. No other project characteristics are deciding factors in the selection, except that management has determined that projects 7 and 8 are mutually exclusive. All the projects required the same initial…arrow_forwardWhich of the following statements is false? A. Net incomes are not cash flows. Financial Managers should focus on the cash flows when making capital budgeting decisions. B. Incremental earnings are the amount by which the firm's earnings are expected to change as a result of the investment decision. C. To the extend that overhead costs are fixed and will be incurred in any case, they are not incremental to the project and should be excluded in the capital budgeting analysis. D. Depreciation is not a cash expense paid by the firm. E. None of the above.arrow_forwardDefining capital investment terms Fill in each statement with the appropriate capital investment analysis method: Payback, ARR, NPV, or IRR. Some statements may have more than one answer. __________ is(are) more appropriate for long-term investments. __________ highlights risky investments. ____________ shows the effect of the investment on the company’s accrual-based income. ___________ is the interest rate that makes the NPV of an investment equal to zero. __________ requires management to identify the discount rate when used. _________ provides management with information on how fast the cash invested will be recouped ___________ is the rate of return, using discounted cash flows, a company can expect to earn by investing in the asset. __________ does not consider the asset’s profitability __________ uses accrual accounting rather than net cash inflows in its computation.arrow_forward
- Introduction Net Present Value is a financial measure used to evaluate the profitability of an investment or project. If an NPV is positive, it suggests that the investment is profitable to the investor, while a negative NPV indicates potential losses. It helps in decision-making by considering the cost of capital and determining whether an investment adds value to the business.arrow_forwardProfitability index. It is a ratio that provides information about the present value of net cash flows to the net investment. It provides a measure of the relative present value return for each dollar of initial investment. Discuss its usefulness. Should managers rely upon it? Consider its usefulness in a capital rationing situation (capital investment under conditions of financial restraint).arrow_forward“By applying capital to investments with long-term benefits, the company is attempting to produce value. This value is dependent on expected future cash flows as well as on the cost of funds.” 1. Explain this statement with regards to the role of cost of capital in financial management decisions.arrow_forward
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