sentence correction gmat preparation guide

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sentence correction gmat preparation guideBooks You don't have any books yet. Studylists You don't have any Studylists yet. Recent Documents You haven't viewed any documents yet. The Fundamentals of Capital Budgeting. Before You Go On Questions and Answers. Section 10.1Capital investments are the most important decisions made by a firm’s management,These are usually long-term projects that will define the firm’s line of business andA project is independent if the decision to accept or reject it does not affect the decisionOn the other hand, projects are mutually exclusive ifContingent projects are those inSection 10.2NPV is simply the difference between the present value of a project’s expected futureIt is the recommended technique used to value capitalThe five-step process used in the NPV analysis can be listed as follows:Section 10.3The payback period is defined as the number of years it takes to recover the project’sThe payback period determines how quickly you recover your investment in a project. Thus, it serves as a good measure of the project’s liquidity.The payback method does not account for time value of money, nor does it distinguishIn addition, there is no rationale behind choosing theSection 10.6Over the years, there has been a shift from using payback and ARR as the primary capitalManagers today understand theSelf-Study ProblemsThe costs and the cash flows from theseIf the company uses a 12 percent discount rate for all projects,Year 0. Year 1. Year 2. Year 3. Otis Forklifts. Craigmore Forklifts. Solution. NPV for Otis Forklifts:CFtSolution. Payback period for Rutledge project. Cumulative. YearCumulative. Year. Cash Flow. Cash FlowsRemaining cost to recover. Cash flow during the year. Payback period for Project B. Remaining cost to recover. If the payback period is three years, only project B will be chosen. If the payback criterion isThe sales andYear 1. Year 4. Year 5. TheSales. Expenses. The company will accept all projects that provide an accounting rate of return (ARR) of atSolution.http://www.otk-alfamos.ru/userfiles/hp-2515-manual-pdf.xml

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Sales. DepreciationYear 4. Year 5Year 3. Beginning Book ValueAverage book value. Accounting rate of return. The company should accept the project. Thus the IRR for Craigmore is less than 13.1 percent. The exact rate is 13.06 percent. Based on the IRR, we would still pick Otis over Craigmore forklift systems. The decisionCritical Thinking QuestionsThe cost of capital is the minimum required return on any new investment that allows aThe town hasHow will the project ofClassify these projects as independent,Microsoft has also put in aWhat type of projectAcceptance of the road-building project is contingentIf the new plant will not haveHowever, thisAccepting or rejecting one will notThe cash flows of the two projects areThe company’s computers need onlyEither the Linux or the Windows operating system needs toHence, the selection of one will eliminate the other fromCapital rationing implies that a firm does not have the resources necessary to fund all ofIn other words, funding needs exceed funding resources. Thus, theProjects that create the largest increase in shareholder wealth willThis leads to a bias against longer-termThe biggest advantage of ARR is that it is easy to compute since accounting data isHowever, theSimilar to the payback, it does notNo economic rationale isFinally, the ARR uses net income to evaluate theThis is a serious flaw in this approach.IRR and the NPV methods of evaluating capital investment projects might produceFirst, if the project’s cash flows are notWe would be unable toThe second situation occurs when two or more projects are mutually exclusive. TheThere is an important reason for this. IRR assumes that allNPV method assumes that they are reinvested at the cost of capital. Since the cost ofWhat are they?http://amityhr.com/userfiles/hp-2550-manual-troubleshooting.xml IRR assumes that the cash flows from a project are reinvested at the project’s IRR, whileThe MIRR assumes that each operating cashThe second appeal of MIRR is that under this method all of the compounded operatingSince most projectsThe company experienceWhich of the following projects should the company select toProject. Expected Return. RiskProjectRequired. Expected. Return. LowAverageDecisionNCFtThe cost of the new equipment and the resulting cash flows areIf the firm uses an 18 percent discount rate, shouldYear. Cash FlowThe company’s management projectsNCFtYearCost savings from the investment over the next six years will be. What is the payback period on this investment?Cumulative. YearCapital investments are the most im portant decisions made by a firm ’s management, because they usually involve large cash outfl ows and once m ade are not easily reversed. These are usually long-term projects that wi ll define the firm’s line of business and significantly contribute to the total revenue figure for years to come. 2. What are the differences between capital projects that are independent, mutually exclusive, and contingent. A project is independent if the decision to accep t or reject it d oes not affect the decision to accept or reject another project. O n the ot her hand, projects are mutually exclusive if the acceptance of one implies rejection of the other. Con tingent projects are those in which the acceptance of one project is dependent on another project. Section 10.2 1. What is the NPV of a project. NPV is simply the difference between the pres ent value of a project’s exp ected future cash flows and its cost. It is the reco mmended technique used to value capital investments, as it takes into account both the tim ing of th e cash flows and their risk. Capital investments are the most important decisions made by a firms management, because they usually involve large cash outflows and once made are not easily reversed.https://directori.p2pvalue.eu/explore/cbpp-communities/community/datasheet/hoyer-lift-training-manual These are usually long-term projects that will define the firms line of business and significantly contribute to the total revenue figure for years to come. 2. What are the differences between capital projects that are independent, mutually exclusive, and contingent. A project is independent if the decision to accept or reject it does not affect the decision to accept or reject another project. On the other hand, projects are mutually exclusive if the acceptance of one implies rejection of the other. Contingent projects are those in which the acceptance of one project is dependent on another project. Section 10.2 1. What is the NPV of a project. NPV is simply the difference between the present value of a projects expected future cash flows and its cost. The five-step process used in the NPV analysis can be listed as follows: (1) Determine the cost of the project. (2) Estimate the projects future cash flows over its expected life. (3) Determine the riskiness of a project and the appropriate cost of capital. (4) Compute the projects NPV. (5) Make a decision. Section 10.3 1. What is the payback period. The payback period is defined as the number of years it takes to recover the projects initial investment. All other things being equal, the project with the shortest payback period is usually the optimal investment. 2. Why does the payback period provide a measure of a projects liquidity risk. The payback period determines how quickly you recover your investment in a project. Thus, it serves as a good measure of the projects liquidity. 3. What are the main shortcomings of the payback method. The payback method does not account for time value of money, nor does it distinguish between high- and low-risk projects. In addition, there is no rationale behind choosing the cutoff criteria. For all these reasons, the payback method is not the ideal capital decision rule. Section 10.4 1. What are the major shortcomings of using the ARR method as a capital budgeting method. The biggest shortcoming of using ARR as a capital budgeting tool is that it uses historical, or book value data rather than cash flows and thus disregards the time value of money principle. In addition, as in the payback method, it fails to establish a rationale behind picking the appropriate hurdle rate. Section 10.5 1. What is the IRR method. The IRR, or the internal rate of return, is the discount rate that makes the net present value of the projects future cash flows zero. The IRR determines whether the projects return rate is higher or lower than the required rate of return, which is the firms cost of capital. As a rule, a project should be accepted if the IRR exceeds the firms cost of capital; otherwise the project should be rejected. 2. In capital budgeting, what is a conventional cash flow pattern. A conventional project cash flow in capital budgeting is one in which an initial cash outflow is followed by one or more future cash inflows. 3. Why should the NPV method be the primary decision tool used in making capital investment decisions. Given all the different methods to evaluate capital investment decisions, the NPV method is the preferred valuation tool as it accounts for both time value of money and the projects risk. Managers today understand the importance of the time value of money and discounting and thus regard ARR as an inaccurate and obsolete decision tool. Self-Study Problems 10.1 Premium Manufacturing Company is evaluating two forklift systems to use in its plant that produces the towers for a windmill power farm. The costs and the cash flows from these systems are shown below. If the company uses a 12 percent discount rate for all projects, determine which forklift system should be purchased using the net present value (NPV) approach. Find the payback period for the project. What if the company accepts all projects as long as the payback period is less than five years. The sales and expenses (excluding depreciation) for the next five years are shown in the following table. The companys tax rate is 34 percent. The company w all pr ovi cou of re ) of at least 45 percent. Should the company accept the project. Report this Document Download now Save Save 143891606 Capital Budgeting Solutions Manual Ch10 For Later 0 ratings 0 found this document useful (0 votes) 278 views 79 pages Capital Budgeting Solutions Manual Ch10 Original Title: 143891606 Capital Budgeting Solutions Manual Ch10 Uploaded by Glennizze Galvez Description: be an inspiration Full description Save Save 143891606 Capital Budgeting Solutions Manual Ch10 For Later 0 0 found this document useful, Mark this document as useful 0 0 found this document not useful, Mark this document as not useful Embed Share Print Download now Jump to Page You are on page 1 of 79 Search inside document Cancel anytime. Share this document Share or Embed Document Sharing Options Share on Facebook, opens a new window Share on Twitter, opens a new window Share on LinkedIn, opens a new window Share with Email, opens mail client Copy Text Related Interests Internal Rate Of Return Capital Budgeting Net Present Value Money Investing Footer menu Back to top About About Scribd Press Our blog Join our team. Quick navigation Home Books Audiobooks Documents, active. If you continue browsing the site, you agree to the use of cookies on this website. See our User Agreement and Privacy Policy.If you continue browsing the site, you agree to the use of cookies on this website. See our Privacy Policy and User Agreement for details.You can change your ad preferences anytime. E10-1. Payback period. Answer: The payback period for Project Hydrogen is 4.29 years. The payback period for Project. Helium is 5.75 years. Both projects are acceptable because their payback periods are less than. Elysian Fields’ maximum payback period criterion of 6 years.Year Cash Inflow Present ValueAnswer. Project KelvinChoose the projectProject T-ShirtNote: The IRR for Project Terra is 10.68 while that of Project Firma is 10.21. Furthermore, when the discount rate is zero, the sum of Project Terra’s cash flows exceed thatNote to instructor: In most problems involving the IRR calculation, a financial calculator has been used. Answers to NPV-based questions in the first ten problems provide detailed analysis of the present valueThereafter, financial calculator worksheet keystrokes are provided. MostP10-1. Payback period. LG 2; BasicP10-2. Payback comparisons. LG 2; IntermediatePayback cannot consider this difference; it ignores all cash inflows beyond the paybackLG 2; IntermediateProject A Project B. Cash. Inflows. Investment. Balance Year. BalanceHowever, since they are mutually exclusive projects, JohnP10-4. Personal finance: Long-term investment decisions, payback periodProject A Project B. Annual. Cash FlowProject B’s payback of 4.25 years.NPV PVn Initial investment. Accept project. Solve for PV 19,869.39. Reject. Accept. P10-6. NPV for varying cost of capital. LG 3; BasicNPV PVn Initial investment. Accept; positive NPVNPV PVn Initial investment. Reject; negative NPV. P10-7. NPV—independent projects. LG 3; Intermediate. Project A. Project B—PV of Cash Inflows. Set I 14. Project C—PV of Cash Inflows. Project D. NPV PVn Initial investment. Project E—PV of Cash Inflows. AcceptChanging the annuity to a beginning-of-the-period annuity due would cause Simes InnovationsP10-9. NPV and maximum return. LG 3; Challenge. NPV PV Initial investment. Reject this project due to its negative NPV. Solve for I 8.86Since the firm’s required return is 10 the cost of capital is greater than the expected returnP10-10. NPV—mutually exclusive projects. LG 3; IntermediatePress A. Set I 15. RejectSet I 15. Press C. AcceptRank Press NPVProfitability Index Present Value Cash Inflows InvestmentThis is the same ranking as was generated by the NPV rule. P10-11. Personal finance: Long-term investment decisions, NPV methodTime frame (years) 40. Opportunity cost 6.0. Calculator Worksheet Keystrokes:The financial benefits outweigh the cost of the MBA program.LG 2, 3; IntermediateProject Payback Period. Project C, with the shortest payback period, is preferred.Year Project A Project B Project CProject C is preferred using the NPV as a decision criterion.Because of Project C’s cash flowP10-13. NPV and EVA. In this case, NPV and EVA give exactly the same answer.LG 4; Intermediate. IRR is found by solving:Project A. Solve for IRR 17.43. If the firm’s cost of capital is below 17, the project would be acceptable. Project B. Solve for IRR 8.62. The firm’s maximum cost of capital for project acceptability would be 8.62. Project C. Solve for IRR 25.41. The firm’s maximum cost of capital for project acceptability would be 25.41. Solve for IRR 21.16. The firm’s maximum cost of capital for project acceptability would be 21 (21.16). P10-15. IRR—Mutually exclusive projects. LG 4; IntermediateProject XProject YP10-16. Personal Finance: Long-term investment decisions, IRR method. LG 4; Intermediate. IRR is the rate of return at which NPV equals zero. Computer inputs and output. Solve for IRR 6.40. Required rate of return: 7.5. Decision: Reject investment opportunity. P10-17. IRR, investment life, and cash inflows. LG 4; Challenge. Solve for I 10.0. The IRR cost of capital; reject the project. Solve for N 18.23 years. The project would have to run a little over 8 more years to make the project acceptable withP10-18. NPV and IRR. LG 3, 4; Intermediate. Solve for I 12.01LG 3, 4; Intermediate. Or, using NPV keystrokes. NPVB Key strokes. NPVC Key strokes. NPVD Key strokes. AcceptRank Press NPVProject IRRNote: Since Project A was the only rejected project from the four projects, all that wasLG 2, 3, 4: IntermediateProject A Project B. BalanceSet I 9AcceptSolve for IRR 19.91Rank. Project Payback NPV IRRThe assumed reinvestment rate of Project B is 22.71,P10-21. Payback, NPV, and IRR. LG 2, 3, 4; IntermediateSet I 12IRR 15; since IRR 12 cost of capital; accept. The project should be implemented since it meets the decision criteria for both NPV andLG 3, 4, 5; ChallengeProject A. Set I 12. Based on the NPV the project is acceptable since the NPV is greater than zero. Solve for IRRA 16.06Set I 12. Solve for IRRB 17.75. Based on the IRR the project is acceptable since the IRR of 17.75 is greater than the 12Data for NPV ProfilesThe conflict inAt discount ratesThe IRR method reinvests Project B’s larger early cashLG 2, 3, 4, 5, 6; Challenge. ProjectProject A. Set I 13. Set I 13Project A. Solve for IRRA 19.86. Solve for IRRB 17.34. Solve for IRRC 14.59Data for NPV ProfilesP10-24. All techniques with NPV profile—mutually exclusive projects. LG 2, 3, 4, 5, 6; ChallengePayback period. Payback 3.67 yearsPayback periodSet I 13. Set I 13Solve for IRRA 14.61. Solve for IRRB 15.24If cost of capital is above 14, conflicting rankings occur. The calculator solution is 13.87.Both have similar payback periods, positive NPVs, andAlthough Project B has a slightlySince Project A has a higher NPV, accept Project A. P10-25. Integrative—Multiple IRRs. LG 6; BasicIt has an inflow, so the payback isAfter 2 years, the project’sFor instance, at 5, the NPV isHowever, at a higher 15 discount rate the NPVLG 3, 4, 5; IntermediateSolve for IRR 43.70. Product Introduction. Solve for IRR 52.33Rank. Project NPV IRR PI. Plant Expansion 1 2 2. Product Introduction 2 1 1The rankings do not agree because the plant expansion has aP10-27. Ethics problem. LG 1, 6; Intermediate. Expenses are almost sure to increase for Gap. The stock price would almost surely decline in theIn the long run, Gap may be ableThis long-run effect is notIn fact, if Gap wasNow customize the name of a clipboard to store your clips. Please try again.Please try again.Please try again. Then you can start reading Kindle books on your smartphone, tablet, or computer - no Kindle device required. Full content visible, double tap to read brief content. Videos Help others learn more about this product by uploading a video. Upload video To calculate the overall star rating and percentage breakdown by star, we don’t use a simple average. Instead, our system considers things like how recent a review is and if the reviewer bought the item on Amazon. It also analyzes reviews to verify trustworthiness. Capital budgeting preference decisions are concerned with choosing from among two or more alternative investment projects, each of which has passed the hurdle. 14-2 The ?time value of money? refers to the fact that a dollar received today is more valuable than a dollar received in the future simply because a dollar received today can be invested to yield more than a dollar in the future. 14-3 Discounting is the process of computing the present value of a future cash flow. Discounting gives recognition to the time value of money and makes it possible to meaningfully add together cash flows that occur at different times. 14-4 Accounting net income is based on accruals rather than on cash flows. Both the net present value and internal rate of return methods focus on cash flows. 14-5 Discounted cash flow methods are superior to other methods of making capital budgeting decisions because they recognize the time value of money and take into account all future cash flows. 14-6 Net present value is the present value of cash inflows less the present value of the cash outflows. The net present value can be negative if the present value of the outflows is greater than the present value of the inflows. 14-7 One simplifying assumption is that all cash flows occur at the end of a period. Another is that all cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate. 14-8 No. The cost of capital is not simply the interest paid on long-term debt. The cost of capital is a weighted average of the individual costs of all sources of financing, both debt and equity. 14-9 The internal rate of return is the rate of return on an investment project over its life. It is computed by finding the discount rate that results in a zero net present value for the project. 14-10 The cost of capital is a hurdle that must be cleared before an investment project will be accepted. In the case of the net present value method, the cost of capital is used as the discount rate. If the net present value of the project is positive, then the project is acceptable because its rate of return is greater than the cost of capital. In the case of the internal rate of return method, the cost of capital is compared to a project’s internal rate of return. If the project’s internal rate of return is greater than the cost of capital, then the project is acceptable. 14-11 No. As the discount rate increases, the present value of a given future cash flow decreases. The internal rate of return would be 14 only if the net present value (evaluated using a 14 discount rate) is zero. The internal rate of return would be less than 14 if the net present value (evaluated using a 14 discount rate) is negative. 14-14 The payback period is the length of time for an investment to fully recover its initial cost out of the cash receipts that it generates. The payback method is used as a screening tool for investment proposals. The payback method is useful when a company has cash flow problems. The payback method is also used in industries where obsolescence is very rapid. 14-13 The project profitability index is computed by dividing the net present value of the cash flows from an investment project by the investment required. The index measures the profit (in terms of net present value) provided by each dollar of investment in a project. The higher the project profitability index, the more desirable is the investment project. 14-15 Neither the payback method nor the simple rate of return method considers the time value of money. Under both methods, a dollar received in the future is weighed the same as a dollar received today. Initial investment. Therefore, the above approach cannot be used to compute the internal rate of return in this situation. Using trial-and-error or some other method, the internal rate of is 22: Item Initial investment. Annual cash inflows. Solutions Manual, Chapter 14 791 To download more slides, ebook, solutions and test bank, visit Exercise 14-3 (15 minutes) The equipment’s net present value without considering the intangible benefits would be: Item Cost of the equipment. Annual cost savings. Less operating cost of new machine. Scrap value of old machine. Less annual depreciation (?432,000 ? 12 years). Annual incremental net operating income. Annual cash inflow. Net present value. Project Y: Initial investment. Single cash inflow. Solutions Manual, Chapter 14 797 To download more slides, ebook, solutions and test bank, visit Exercise 14-9 (10 minutes) Purchase of the stock. Annual cash dividends. Salvage value of the equipment. Net present value. Project B: Working capital investment. Working capital released. Solutions Manual, Chapter 14 799 To download more slides, ebook, solutions and test bank, visit Exercise 14-11 (30 minutes) 1. Item Initial investment. Add noncash deduction for depreciation. Now Annual net cash inflows. 1-10 Net present value. Solutions Manual, Chapter 14 803 To download more slides, ebook, solutions and test bank, visit Exercise 14-15 (10 minutes) Note: All present value factors in the computation below have been taken from Exhibit 14B-1 in Appendix 14B, using a 12 discount rate. Solutions Manual, Chapter 14 805 To download more slides, ebook, solutions and test bank, visit Problem 14-16 (continued) 3. Oxford Company’s opportunities for reinvesting funds as they are released from a project will determine which ranking is best. The internal rate of return method assumes that any released funds are reinvested at the rate of return shown for a project. This means that funds released from project D would have to be reinvested in another project yielding a rate of return of 22. Another project yielding such a high rate of return might be difficult to find. The project profitability index approach also assumes that funds released from a project are reinvested in other projects. But the assumption is that the return earned by these other projects is equal to the discount rate, which in this case is only 10. On balance, the project profitability index is generally regarded as being the most dependable method of ranking competing projects. The net present value is inferior to the project profitability index as a ranking device, because it looks only at the total amount of net present value from a project and does not consider the amount of investment required. Solutions Manual, Chapter 14 807 To download more slides, ebook, solutions and test bank, visit Problem 14-17 (continued) 3. Which ranking is best will depend on Revco Products’ opportunities for reinvesting funds as they are released from the project. The internal rate of return method assumes that any released funds are reinvested at the internal rate of return. The project profitability index approach assumes that funds released from a project are reinvested in other projects at a rate of return equal to the discount rate, which in this case is only 10. On balance, the project profitability index is the most dependable method of ranking competing projects. The net present value is inferior to the project profitability index as a ranking device because it looks only at the total amount of net present value from a project and does not consider the amount of investment required. Working capital required. Annual net cash receipts. Cost to construct new roads. Salvage value of equipment. Solutions Manual, Chapter 14 809 To download more slides, ebook, solutions and test bank, visit Problem 14-19 (20 minutes) 1. The annual net cash inflows would be: Reduction in annual operating costs: Operating costs, present hand method. Operating costs, new machine. Annual savings in operating costs. Replacement of parts. Annual net cash inflows (above). Salvage value of the machine. Design by 123DOC. And by having access to our ebooks online or by storing it on your computer, you have convenient answers with Viewcontent Php3Farticle3Dfinancial Management Solution Manual26context3Dlibpubs. To get started finding Viewcontent Php3Farticle3Dfinancial Management Solution Manual26context3Dlibpubs, you are right to find our website which has a comprehensive collection of manuals listed. Our library is the biggest of these that have literally hundreds of thousands of different products represented. I get my most wanted eBook Many thanks If there is a survey it only takes 5 minutes, try any survey which works for you. The geographical boundaries that define the locations of equipment Why is packet switching considered to be an efficient alternative to the circuit switching technology used by telephone companies. PCM Which of the following statements is true about Plain Old Telephone Service. The other materials and tools are personal safety equipment, messenger drop wire clamps, and in awl or drill During the Ariel drop attachment to the customer premises Attach the messenger drop cable to the house hook using a messenger drop wire clamps For an underground drop installation, the most important consideration in planning the ground block location is Compliance with grounding and bonding requirements In an underground Service drop installation Always use non messengered flooded coaxial drop cable between the pedestal and the ground block When planting a new underground drop cable route Ask the customer if he would like to drop routed in any specific way When an underground drop cable cannot be buried at the time of installation, prepared for later burial of the cable by Running the unburied drop cable along a fence line to minimize the hazard of anyone tripping over the drop \\ reporting the temporary drop status to your Broadband cable system, so the cable can be buried within the specified time frame To hand bury drop cable Make the bottom of the cut in the ground as level as possible, so the cable can lie flat Plastic or polyethylene drop cable conduit Can either be plowed or polled into the ground with a cable plow To bury drop cable, a starting Trench and a receding pit typically are required to perform Manual and machine boring Which of the following statements is true concerning tap enclosures in an underground drop system. By comparison what is the average download speed from a phone companies DSL service?