New Semester Started Get 50% OFF Study Help! --h --m --s Claim Now

Question Answers

Textbooks

Find textbooks, questions and answers

Oops, something went wrong!

Change your search query and then try again

Result Not Found

Books FREE
Study Help
Tutors
AI Study Planner NEW
Sell Books

Search
Sign In
Register

study help
business
finance

Principles Of Managerial Finance 13th Edition Lawrence J. Gitman, Chad J. Zutter - Solutions

How is the net present value (NPV) calculated for a project with a conventional cash flow pattern?
What are the acceptance criteria for NPV? How are they related to the firm’s market value?
Explain the similarities and differences between NPV, PI, and EVA.
What is the internal rate of return (IRR) on an investment? How is it determined?
What are the acceptance criteria for IRR? How are they related to the firm’s market value?
Do the net present value (NPV) and internal rate of return (IRR) always agree with respect to accept–reject decisions? With respect to ranking decisions? Explain.
How is a net present value profile used to compare projects? What causes conflicts in the ranking of projects via net present value and internal rate of return?
Does the assumption concerning the reinvestment of intermediate cash inflow tend to favor NPV or IRR? In practice, which technique is preferred and why?
Elysian Fields, Inc., uses a maximum payback period of 6 years and currently must choose between two mutually exclusive projects. Project Hydrogen requires an initial outlay of $25,000; project Helium requires an initial outlay of $35,000. Using the expected cash inflows given for each project in
Herky Foods is considering acquisition of a new wrapping machine. The initial investment is estimated at $1.25 million, and the machine will have a 5-year life with no salvage value. Using a 6% discount rate, determine the net present value (NPV) of the machine given its expected operating cash
Axis Corp. is considering investment in the best of two mutually exclusive projects. Project Kelvin involves an overhaul of the existing system; it will cost $45,000 and generate cash inflows of $20,000 per year for the next 3 years. Project Thompson involves replacement of the existing system; it
Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project T-Shirt requires an initial investment of $15,000 and generates cash inflows of $8,000 per year for 4
Cooper Electronics uses NPV profiles to visually evaluate competing projects. Key data for the two projects under consideration are given in the following table. Using these data, graph, on the same set of axes, the NPV profiles for each project using discount rates of 0%, 8%, and theIRR.
Jordan Enterprises is considering a capital expenditure that requires an initial investment of $42,000 and returns after-tax cash inflows of $7,000 per year for 10 years. The firm has a maximum acceptable payback period of 8 years.a. Determine the payback period for this project.b. Should the
Nova Products has a 5-year maximum acceptable payback period. The firm is considering the purchase of a new machine and must choose between two alternative ones. The first machine requires an initial investment of $14,000 and generates annual after-tax cash inflows of $3,000 for each of the next 7
Shell Camping Gear, Inc., is considering two mutually exclusive projects. Each requires an initial investment of $100,000. John Shell, president of the company, has set a maximum payback period of 4 years. The after-tax cash inflows associated with each project are shown in the following table:a.
Bill Williams has the opportunity to invest in project A that costs $9,000 today and promises to pay annual end-of-year payments of $2,200, $2,500, $2,500, $2,000, and $1,800 over the next 5 years. Or, Bill can invest $9,000 in project B that promises to pay annual end-of-year payments of $1,500,
Calculate the net present value (NPV) for the following 20-year projects. Comment on the acceptability of each. Assume that the firm has an opportunity cost of 14%.a. Initial investment is $10,000; cash inflows are $2,000 per year.b. Initial investment is $25,000; cash inflows are $3,000 per
Dane Cosmetics is evaluating a new fragrancemixing machine. The machine requires an initial investment of $24,000 and will generate after-tax cash inflows of $5,000 per year for 8 years. For each of the costs of capital listed, (1) Calculate the net present value (NPV), (2) Indicate whether to
Using a 14% cost of capital, calculate the net present value for each of the independent projects shown in the following table, and indicate whether each isacceptable.
Simes Innovations, Inc., is negotiating to purchase exclusive rights to manufacture and market a solar-powered toy car. The car’s inventor has offered Simes the choice of either a one-time payment of $1,500,000 today or a series of five year-end payments of $385,000.a. If Simes has a cost of
A firm can purchase a fixed asset for a $13,000 initial investment. The asset generates an annual after-tax cash inflow of $4,000 for 4 years. a. Determine the net present value (NPV) of the asset, assuming that the firm has a 10% cost of capital. Is the project acceptable?b. Determine the maximum
Hook Industries is considering the replacement of one of its old drill presses. Three alternative replacement presses are under consideration. The relevant cash flows associated with each are shown in the following table. The firm's cost of capital is 15%.a. Calculate the net present value (NPV)
Jenny Jenks has researched the financial pros and cons of entering into an elite MBA program at her state university. The tuition and needed books for a master’s program will have an upfront cost of $100,000. On average, a person with an MBA degree earns an extra $20,000 per year over a business
Neil Corporation has three projects under consideration. The cash flows for each project are shown in the following table. The firm has a 16% cost of capital.a. Calculate each project's payback period. Which project is preferred according to this method?b. Calculate each project's net present value
A project costs $2.5 million up front and will generate cash flows in perpetuity of $240,000. The firm’s cost of capital is 9%.a. Calculate the project’s NPV.b. Calculate the annual EVA in a typical year.c. Calculate the overall project EVA and compare to your answer in part a.
For each of the projects shown in the following table, calculate the internal rate of return (IRR). Then indicate, for each project, the maximum cost of capital that the firm could have and still find the IRRacceptable.
Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm€™s warehouse capacity. The relevant cash flows for the projects are shown in the following table. The firm€™s cost of capital is 15%.a. Calculate the IRR to the
Billy and Mandy Jones have $25,000 to invest. On average, they do not make any investment that will not return at least 7.5% per year. They have been approached with an investment opportunity that requires $25,000 upfront and has a payout of $6,000 at the end of each of the next 5 years. Using the
Oak Enterprises accepts projects earning more than the firm’s 15% cost of capital. Oak is currently considering a 10-year project that provides annual cash inflows of $10,000 and requires an initial investment of $61,450. (Note: All amounts are after taxes.)a. Determine the IRR of this project.
Benson Designs has prepared the following estimates for a longterm project it is considering. The initial investment is $18,250, and the project is expected to yield after-tax cash inflows of $4,000 per year for 7 years. The firm has a 10% cost of capital.a. Determine the net present value (NPV)
Botany Bay, Inc., a maker of casual clothing, is considering four projects. Because of past financial difficulties, the company has a high cost of capital at 15%. Which of these projects would be acceptable under those cost circumstances?a. Calculate the NPV of each project, using a cost of
Nicholson Roofing Materials, Inc., is considering two mutually exclusive projects, each with an initial investment of $150,000. The company€™s board of directors has set a maximum 4-year payback requirement and has set its cost of capital at 9%. The cash inflows associated with the two
Rieger International is attempting to evaluate the feasibility of investing $95,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table. The firm has a 12% cost of capital.Year (t) Cash inflows (CFt)1
Thomas Company is considering two mutually exclusive projects. The firm, which has a 12% cost of capital, has estimated its cash flows as shown in the following table.a. Calculate the NPV of each project, and assess its acceptability.b. Calculate the IRR for each project, and assess its
Pound Industries is attempting to select the best of three mutually exclusive projects. The initial investment and after-tax cash inflows associated with these projects are shown in the following table.a. Calculate the payback period for each project.b. Calculate the net present value (NPV) of
Projects A and B, of equal risk, are alternatives for expanding Rosa Company's capacity. The firm's cost of capital is 13%. The cash flows for each project are shown in the following table.a. Calculate each project's payback period.b. Calculate the net present value (NPV) for each project.c.
Froogle Enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of cash inflows and outflows shown in the following table:Year Cash flow0 ....... $ 200,0001 ........ –920,0002 ....... 1,582,0003 ........ –1,205,2004 ........ 343,200a. Why is it
The High-Flying Growth Company (HFGC) has been growing very rapidly in recent years, making its shareholders rich in the process. The average annual rate of return on the stock in the last few years has been 20%, and HFGC managers believe that 20% is a reasonable figure for the firm's cost of
Gap, Inc., is trying to incorporate human resource and supplier considerations into its management decision making. Here is Gap’s report of findings from a recent Social Responsibility Report:Because factory owners sometimes try to hide violations, Gap emphasizes training for factory managers.
Why is it important to evaluate capital budgeting projects on the basis of incremental cash flows?
What three components of cash flow may exist for a given project? How can expansion decisions be treated as replacement decisions? Explain.
What effect do sunk costs and opportunity costs have on a project’s incremental cash flows?
How can currency risk and political risk be minimized when one is making foreign direct investment?
Explain how each of the following inputs is used to calculate the initial investment: (a) Cost of new asset, (b) Installation costs, (c) Proceeds from sale of old asset, (d) Tax on sale of old asset, and (e) Change in net working capital.
How is the book value of an asset calculated? What are the two key forms of taxable income?
What three tax situations may result from the sale of an asset that is being replaced?
Referring to the basic format for calculating initial investment, explain how a firm would determine the depreciable value of the new asset.
How does depreciation enter into the calculation of operating cash inflows? How does the income statement format in Table 11.6 relate to Equation 4.3 for finding operating cash flow(OCF)?
How are the incremental (relevant) operating cash inflows that are associated with a replacement decision calculated?
Explain how the terminal cash flow is calculated for replacement projects.
Diagram and describe the three components of the relevant cash flows for a capital budgeting project.
If Halley Industries reimburses employees who earn master’s degrees and who agree to remain with the firm for an additional 3 years, should the expense of the tuition reimbursement be categorized as a capital expenditure or an operating expenditure?
Iridium Corp. has spent $3.5 billion over the past decade developing a satellitebased telecommunication system. It is currently trying to decide whether to spend an additional $350 million on the project. The firm expects that this outlay will finish the project and will generate cash flow of $15
Canvas Reproductions, Inc., has spent $4,500 dollars researching a new project. The project requires $20,000 worth of new machinery, which would cost $3,000 to install. The company would realize $4,500 in after-tax proceeds from the sale of old machinery. If Canvas’s working capital is unaffected
A few years ago, Largo Industries implemented an inventory auditing system at an installed cost of $175,000. Since then, it has taken depreciation deductions totaling $124,250. What is the system’s current book value? If Largo sold the system for $110,000, how much recaptured depreciation would
Bryson Sciences is planning to purchase a high-powered microscopy machine for $55,000 and incur an additional $7,500 in installation expenses. It is replacing similar microscopy equipment that can be sold to net $35,000, resulting in taxes from a gain on the sale of $11,250. Because of this
Given the following list of outlays, indicate whether each is normally considered a capital expenditure or an operating expenditure. Explain your answers.a. An initial lease payment of $5,000 for electronic point-of-sale cash register systems.b. An outlay of $20,000 to purchase patent rights from
For each of the following projects, determine the relevant cash flows, and depict the cash flows on a time line.a. A project that requires an initial investment of $120,000 and will generate annual operating cash inflows of $25,000 for the next 18 years. In each of the 18 years, maintenance of the
Edison Systems has estimated the cash flows over the 5-year lives for two projects, A and B. These cash flows are summarized in the table below.a. If project A were actually a replacement for project B and if the $12,000 initial investment shown for project B were the after-tax cash inflow expected
Masters Golf Products, Inc., spent 3 years and $1,000,000 to develop its new line of club heads to replace a line that is becoming obsolete. To begin manufacturing them, the company will have to invest $1,800,000 in new equipment. The new clubs are expected to generate an increase in operating cash
Covol Industries is developing the relevant cash flows associated with the proposed replacement of an existing machine tool with a new, technologically advanced one. Given the following costs related to the proposed project, explain whether each would be treated as a sunk cost or an opportunity
Dave and Ann Stone have been living at their present home for the past 6 years. During that time, they have replaced the water heater for $375, have replaced the dishwasher for $599, and have had to make miscellaneous repair and maintenance expenditures of approximately $1,500. They have decided to
Find the book value for each of the assets shown in the accompanying table, assuming that MACRS depreciation is beingused.
Troy Industries purchased a new machine 3 years ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the percentages given in Table 4.2. Assume a 40% tax rate.a. What is the book value of the machine?b. Calculate the firm's tax liability if it sold the machine
For each of the following cases, determine the total taxes resulting from the transaction. Assume a 40% tax rate. The asset was purchased 2 years ago for $200,000 and is being depreciated under MACRS using a 5-year recovery period.a. The asset is sold for $220,000.b. The asset is sold for
Samuels Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of $920,000 and total current liabilities of $640,000. As a result of the proposed replacement, the following changes are anticipated in the levels of the
Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and a 5-year recovery period. A new computer system will cost $500,000 to purchase and
Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $20,000; it was being depreciated under MACRS using a 5-year recovery period. The existing machine is expected to have a
Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $10,000. The firm is depreciating the machine under MACRS, using a 5-year recovery period. The new machine costs $24,000 and requires $2,000 in
DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to sell its 4-year-old roaster for $35,000. The existing roaster originally cost $60,000 and was being
A firm is evaluating the acquisition of an asset that costs $64,000 and requires $4,000 in installation costs. If the firm depreciates the asset under MACRS, using a 5-year recovery period, determine the depreciation charge for eachyear.
A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.9 million plus $100,000 in installation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period. Additional sales revenue
Richard and Linda Thomson operate a local lawn maintenance service for commercial and residential property. They have been using a John Deere riding mower for the past several years and feel it is time to buy a new one. They would like to know the incremental (relevant) cash flows associated with
Miller Corporation is considering replacing a machine. The replacement will reduce operating expenses (that is, increase earnings before depreciation, interest, and taxes) by $16,000 per year for each of the 5 years the new machine is expected to last. Although the old machine has zero book value,
Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that will last 5 more years. The new lathe is expected to have a 5-year life and depreciation charges of $2,000 in year 1; $3,200 in year 2; $1,900 in year 3; $1,200 in both year 4 and year 5; and
Scenic Tours, Inc., is a provider of bus tours throughout the New England area. The corporation is considering the replacement of 10 of its older buses. The existing buses were purchased 4 years ago at a total cost of $2,700,000 and are being depreciated using MACRS and a 5-year recovery period.
Looner Industries is currently analyzing the purchase of a new machine that costs $160,000 and requires $20,000 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $30,000 to support the expanded level of operations. The firm plans to
Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $200,000 and will require $30,000 in installation costs. It will be depreciated under MACRS using a 5-year
Marcus Tube, a manufacturer of high-quality aluminum tubing, has maintained stable sales and profits over the past 10 years. Although the market for aluminum tubing has been expanding by 3% per year, Marcus has been unsuccessful in sharing this growth. To increase its sales, the firm is considering
Central Laundry and Cleaners is considering replacing an existing piece of machinery with a more sophisticated machine. The old machine was purchased 3 years ago at a cost of $50,000, and this amount was being depreciated under MACRS using a 5-year recovery period. The machine has 5 years of usable
Lombard Company is contemplating the purchase of a new high-speed widget grinder to replace the existing grinder. The existing grinder was purchased 2 years ago at an installed cost of $60,000; it was being depreciated under MACRS using a 5-year recovery period. The existing grinder is expected to
Jan and Deana have been dreaming about owning a boat for some time and have decided that estimating its cash flows will help them in their decision process. They expect to have a disposable annual income of $24,000. Their cash flow estimates for the boat purchase are as follows:Negotiated price of
Atlantic Drydock is considering replacing an existing hoist with one of two newer, more efficient pieces of equipment. The existing hoist is 3 years old, cost $32,000, and is being depreciated under MACRS using a 5-year recovery period. Although the existing hoist has only 3 years (years 4, 5, and
Are most mutually exclusive capital budgeting projects equally risky? If you think about a firm as a portfolio of many different kinds of investments, how can the acceptance of a project change a firm’s overall risk?
Define risk in terms of the cash flows from a capital budgeting project. How can determination of the breakeven cash inflow be used to gauge project risk?
Describe how each of the following behavioral approaches can be used to deal with project risk: (a) Scenario analysis and (b) Simulation.
Briefly explain how the following items affect the capital budgeting decisions of multinational companies: (a) Exchange rate risk; (b) Political risk; (c) Tax law differences; (d) Transfer pricing; and (e) A strategic, rather than a strict, financial viewpoint.
Describe the basic procedures involved in using risk-adjusted discount rates (RADRs). How is this approach related to the capital asset pricing model (CAPM)?
Explain why a firm whose stock is actively traded in the securities markets need not concern itself with diversification. In spite of this, how is the risk of capital budgeting projects frequently measured? Why?
How are risk classes often used to apply RADRs?
Explain why a mere comparison of the NPVs of unequal-lived, ongoing, mutually exclusive projects is inappropriate. Describe the annualized net present value (ANPV) approach for comparing unequal-lived, mutually exclusive projects.
What are real options? What are some major types of real options?
What is the difference between the strategic NPV and the traditional NPV? Do they always result in the same accept–reject decisions?
What is capital rationing? In theory, should capital rationing exist? Why does it frequently occur in practice?
Compare and contrast the internal rate of return approach and the net present value approach to capital rationing. Which is better? Why?
Birkenstock is considering an investment in a nylon-knitting machine. The machine requires an initial investment of $25,000, has a 5-year life, and has no residual value at the end of the 5 years. The company's cost of capital is 12%. Known with less certainty are the actual after-tax cash
You wish to evaluate a project requiring an initial investment of $45,000 and having a useful life of 5 years. What minimum amount of annual cash inflow do you need if your firm has an 8% cost of capital? If the project is forecast to earn $12,500 per year over the 5 years, what is its IRR? Is the
Like most firms in its industry, Yeastime Bakeries uses a subjective risk assessment tool of its own design. The tool is a simple index by which projects are ranked by level of perceived risk on a scale of 0–10. The scale is recreated in the following table.The firm is analyzing two projects
Outcast, Inc., has hired you to advise the firm on a capital budgeting issue involving two unequal-lived, mutually exclusive projects, M and N. The cash flows for each project are presented in the following table. Calculate the NPV and the annualized net present value (ANPV) for each project using

Showing 1300 - 1400 of 20267

First
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
Last

Step by Step Answers

Services

Sitemap
Fun
Definitions
Become Tutor
Used Textbooks
Study Help Categories
Recent Questions
Expert Questions
Campus Wear
Sell Your Books

Company Info

Security
Copyrights
Privacy Policy
Terms & Conditions
SolutionInn Fee
Scholarship
Online Quiz
Give Feedback, Get Rewards

Get In Touch

About Us
Contact Us
Career
Jobs
FAQ
Student Discount
Campus Ambassador

Secure Payment

Download Our App

© 2026 SolutionInn. All Rights Reserved