Capital Budgeting A company is considering four capital budgeting projects. Data relative to each is given...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Capital Budgeting A company is considering four capital budgeting projects. Data relative to each is given below. Project A has a life of 8 years & B has a life of 7 years. Project C has a 6 year life & D has a life of 6 years. The company uses the Net Present Value (NPV) method to evaluate capital budgeting projects and its discount rate is 5.75%. Initial cash outlay Project A -$2,500,000 Project B -$2,000,000 Project C -$3,200,000 Project D -$11,200,000 (cost) Cash inflows per year $390,000 305,000 Residual value $120,000 $0 $675,000 $50,000 $1,675,000 $1,000,000 (Calculating the Projects NPV is worth 40pts) 1. If the projects are mutually exclusive, which, if any, should the company accept? Why? 10pts 2. If the projects are independent, which, if any, should the company accept? Why? 10pts 3. One of the company's managers states To me, no matter what else we do, Project D needs to be our first choice because it has the highest cashflows per year." Comment on this manager's proposal, considering the concepts of NPV and Payback Method. 10pts 4. Calculate the payback period for each project (20pts). Can you accept any projects just based on the backpack period? Which ones and why? 10pts Capital Budgeting A company is considering four capital budgeting projects. Data relative to each is given below. Project A has a life of 8 years & B has a life of 7 years. Project C has a 6 year life & D has a life of 6 years. The company uses the Net Present Value (NPV) method to evaluate capital budgeting projects and its discount rate is 5.75%. Initial cash outlay Project A -$2,500,000 Project B -$2,000,000 Project C -$3,200,000 Project D -$11,200,000 (cost) Cash inflows per year $390,000 305,000 Residual value $120,000 $0 $675,000 $50,000 $1,675,000 $1,000,000 (Calculating the Projects NPV is worth 40pts) 1. If the projects are mutually exclusive, which, if any, should the company accept? Why? 10pts 2. If the projects are independent, which, if any, should the company accept? Why? 10pts 3. One of the company's managers states To me, no matter what else we do, Project D needs to be our first choice because it has the highest cashflows per year." Comment on this manager's proposal, considering the concepts of NPV and Payback Method. 10pts 4. Calculate the payback period for each project (20pts). Can you accept any projects just based on the backpack period? Which ones and why? 10pts
Expert Answer:
Answer rating: 100% (QA)
Lets start by calculating the NPV for each project using the given discount rate of 575 Then well proceed to answer each question 1 Mutually Exclusive ... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
The general manager of a business encounters many different types of business transactions. Provide an example for each of the following transactions that would describe its effect on the accounting...
-
Wally Bee purchased a new home for $800,000 with a $180,000 down payment. He financed the remainder with a 3% mortgage for 30 years resulting in a $2613.92 monthly payment. Fill the two-month...
-
Identify the key skills and knowledge that a Medical Transcriptionist should have against the industry standards and benchmarks. Analyse the importance of these skills.
-
. 4. Bank overdrafts repayable on * 1 point demand may be included in the cash and cash equivalent balance. True O False
-
The random variable X has a cumulative distribution function Find the probability density function of X. for x <0 0, F(x) = 1+x for x>0.
-
Marietta Corp. had the following reporting issues during the year: 1. Land with a cost of $208,000 that is intended to be used by the company as a building site was reported at its fair value of...
-
What is the probability that we roll an even sum? We are considering two special 6 -sided dice. Each face is labeled with a number and a letter: the first die has faces \(1 A, 1 B, 2 A, 2 C, 4 A, 4...
-
The following information relates to the intangible assets of University Testing Services (UTS): a. On January 1, 2021, UTS completed the purchase of Heinrich Corporation for $3,510,000 in cash. The...
-
15 -16 17 18 19 29 21 22 23 24 25 26 26 27 27 Raina received a $1500 bonus. She decided to invest it in a 2-year certificate of deposit (CD) with an annual interest rate of 1:15% compounded monthly...
-
The price of Tommy Hilfiger stock during a 4-hour period is given below. If a third-degree polynomial models this stock, do you expect the stock to go up or down in the fifth period? The price of...
-
Explain appropriate financial statement classification of retractable preferred shares, which have a required maturity date or are to be repaid at the option of the investor.
-
How is a share-based payment to a supplier measured in the financial statements?
-
What is the distinction between stock options and stock warrants?
-
When would a share-based compensation contract, payable after three years, result in an equity account being recognized in the first year? A liability? Both equity and a liability?
-
What is the benefit that arises as a result of a tax loss?
-
It is not uncommon for a career firefighter to obtain 10 or more certificates depending on their career progression. Do you think this is overkill or exactly what the profession needs?
-
In the simple quantity theory of money, what will lead to an increase in aggregate demand? In monetarism, what will lead to an increase in aggregate demand?
-
What power does a shareholder with a blocking minority have?
-
Why can management compensation in the form of stock create value?
-
Does a capital increase with pre-emptive subscription rights signal overvaluation of the shares more strongly than one without?
Study smarter with the SolutionInn App