Write the calculation process and results. Your answers should be in full sentences and 1-3 paragraphs each.
Fantastic news! We've Found the answer you've been seeking!
Question:
Write the calculation process and results.
Transcribed Image Text:
Your answers should be in full sentences and 1-3 paragraphs each. 1. Assume the manager of ABC Corp makes the following statement: "To lower my cost of capital, I've decided to no longer buy equipment with debt financing anymore. Instead, I will only lease equipment - therefore I have no bank loans and my cost of debt is now zero. More so, since ABC Corp is privately held, and I personally own all the equity - ABC Corp cost of capital is now also zero!". Is the manager correct in his thinking? 2. At an executive meeting, a CFO claims that the NPV of a proposed factory expansion is very high - an expected NPV of 1 billion dollars. Another executive counter the CFO's analysis, by stating that the payback period is too long with estimates of approximately 50 years. If you were also at this executive meeting, what would be your analysis on these differing viewpoints? 3. Intuitively, what is the discount rate, why do we need it, and how do we choose the appropriate number? Your answers should be in full sentences and 1-3 paragraphs each. 1. Assume the manager of ABC Corp makes the following statement: "To lower my cost of capital, I've decided to no longer buy equipment with debt financing anymore. Instead, I will only lease equipment - therefore I have no bank loans and my cost of debt is now zero. More so, since ABC Corp is privately held, and I personally own all the equity - ABC Corp cost of capital is now also zero!". Is the manager correct in his thinking? 2. At an executive meeting, a CFO claims that the NPV of a proposed factory expansion is very high - an expected NPV of 1 billion dollars. Another executive counter the CFO's analysis, by stating that the payback period is too long with estimates of approximately 50 years. If you were also at this executive meeting, what would be your analysis on these differing viewpoints? 3. Intuitively, what is the discount rate, why do we need it, and how do we choose the appropriate number?
Expert Answer:
Answer rating: 100% (QA)
1 The managers statement regarding lowering the cost of capital by no longer using debt financing for equipment purchases and assuming a zero cost of ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
QUIZ... Let D be a poset and let f : D D be a monotone function. (i) Give the definition of the least pre-fixed point, fix (f), of f. Show that fix (f) is a fixed point of f. [5 marks] (ii) Show that...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Ashby and Curtis, married professionals, have a 2-year-old son, Jason. Curtis works full-time as an electrical engineer, but Ashby has not worked outside the home since Jason was born. As Jason is...
-
On April 1, 2017, Ibrahim Corporation assigns $400,000 of its accounts receivable to First National Bank as collateral for a $200,000 loan that is due July 1, 2017. The assignment agreement calls for...
-
Confirm that there are 2.2 Bohr magnetons associated with each iron atom, given that the saturation magnetization is 1.70 ( 106 A/m, that iron has a BCC crystal structure, and that the unit cell edge...
-
Review some of the companies from the list of the top 25 supply chains. What in your view makes these supply chains so good?
-
Martin, Inc. is a manufacturer of lead crystal glasses. The standard direct materials quantity is 1.0 pound per glass at a cost of $0.50 per pound. The actual result for one month's production of...
-
Use the information below to calculate the machine's depreciation expense Machines initial cost $820 Residual value. $120 The Company started to use the machine on May 1, 2020 The useful fe of the...
-
BA%20508%202022%20Sprg%20Group%20Proj%202%20instructions.pdf ^ Total variable OH incurred during the year was $83,420 and total fixed OH incurred was $140,540. OH gets applied to products using...
-
Let H denote the subset of GL(2, R) consisting of elements of GL(2, R) whose four entries are all rational numbers. Prove that H is a subgroup of GL(2, R).
-
Here you go - the non-constant DDM: Jonestown, Inc.'s current dividend of $2.50 is expected to grow 20% for the next 5 years and then fall to 10% thereafter. If the investor's required rate of return...
-
"Organizational Justice and Job Satisfaction as Predictors of Turnover Intentions among Teachers in the Offinso South District of Ghana," by Addai, Kyeremeh, Abdulai, & Sarfo, from European Journal...
-
Errors Error of Omission Error of Commission Error of principle Compensating Errors was made Transaction is totally omitted Wrong account Wrong class of account Complete reversal of Entries Cancelled...
-
Briefly describe each company (Harley Davidson, Yamaha, and Indian Motorcycle). What are the similarities and differences among the companies. For example, relative size (revenues, employees,...
-
A mass of 8 kg of saturated liquid-vapor mixture of HO is contained in a piston-cylinder device at 120 kPa. Initially, 6 kg of the H;O is in the liquid phase and the rest is in the vapor phase. Heat...
-
Citing a scientific article, explain in your own words, how DNA fingerprinting has been used in forensic science to solve crimes and why it may not always be accurate or effective.
-
Olive Corporation was formed and began operations on January 1, 2012. The corporation's income statement for the year and the balance sheet at year-end are presented below. The corporation made...
-
Emily Jackson (Social Security number 765-12-4326) and James Stewart (Social Security number 466-74-9932) are partners in a partnership that owns and operates a barber shop. The partnership's first...
-
Phil and Linda are 25-year-old newlyweds and file a joint tax return. Linda is covered by a retirement plan at work, but Phil is not. a. Assuming Phil's wages were $27,000 and Linda's wages were...
-
An instructor has a first-period class with 25 students, and they had a mean score of 86% on the midterm exam. The second-period class has 30 students, and they had a mean score of 84% on the same...
-
A batting average in baseball is determined by dividing the total number of hits by the total number of at-bats (neglecting walks, sacrifices, and a few other special cases). A player goes 2 for 4 (2...
-
Suppose a player has a batting average over many games of 0.200 (hes not very good). In his next game, he goes 2 for 4, which is a batting average of 0.500 for the game. Does it follow that his new...
Study smarter with the SolutionInn App