Why might managers want to use other techniques besides NPV to make capital budgeting decisions?
Question:
Capital Budgeting
Capital budgeting is a practice or method of analyzing investment decisions in capital expenditure, which is incurred at a point of time but benefits are yielded in future usually after one year or more, and incurred to obtain or improve the...
Step by Step Answer:
One reason is the desire by managers for an intuitive safety margin An IRR of 12 with a cost of cap...View the full answer
Introduction to Finance Markets Investments and Financial Management
ISBN: 978-1118492673
15th edition
Authors: Melicher Ronald, Norton Edgar
Related Video
NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.
Students also viewed these Finance questions
-
Consider a firm that emits pollution into the air. Suppose that the marginal damage costs associated with the emissions are given by MDC-15+ 4c, where e is the quantity of the emissions. The firm's...
-
Why do you think todays managers would want to use the balanced scorecard to measure and control organizational performance? Think of two different kinds of organizations. Do you think the balanced...
-
Besides a press conference, what other tools might BPI or other firms use to improve the publics opinion of their products?
-
Implement the method contains() for BST.
-
A dollar store is a no-frills retailer that sells many goods for one dollar. The percentages of households in various in- come groups that shop at dollar stores are shown in Table 27. Let p be the...
-
Consider the same bill of material and information in Problem #8 but change component part B (1) to B (2) and the gross requirements for A to 220 units. Compute the net requirements for each item...
-
Table B. 11 presents data on the quality of Pinot Noir wine. a. Build a regression model relating quality \(y\) to flavor \(x_{4}\) that incorporates the region information given in the last column....
-
Virtual Campus (VC) is a social media firm that specializes in creating virtual meeting places for students, faculty, staff, and others associated with different college campuses. VC was started as a...
-
1 . Find the degree of freedom or mobility of the following mechanism. 2 . What is the value of Mobility "M" Note: Please how you get the degree of freedom and point out the links and joints. Image...
-
Refer to Exercise 2.20. Another pair of students achieved the following marks. Student P: 94, 91, 88, 77, 75, 74, 66, 65, 54, 52 Student Q: 93, 91, 88, 75, 75, 73, 67, 66, 55, 51 a. Calculate the...
-
Why do the NPV, IRR, and profitability index technique sometimes rank projects differently?
-
Label each of the following as a cannibalization effect, enhancement effect, or neither. Explain your answers. a. A computer manufacturer seeks to produce a high quality engineering work station,...
-
In the situation described in the previous problem, a customer has just arrived. a. Find the probability that the time until the arrival of the next customer is less than 3 minutes. b. Find the...
-
Fickel Company has two manufacturing departments-Assembly and Testing & Packaging. The predetermined overhead rates in Assembly and Testing & Packaging are $12.00 per direct labor-hour and $8.00 per...
-
Change the total fixed manufacturing overhead cost for the Milling Department in Data area back to $390,000, keeping all of the other data the same as in the original example. Consider a new job, Job...
-
BuyCo, Inc., holds 29 percent of the outstanding shares of Marqueen Company and appropriately applies the equity method of accounting. Excess cost amortization (related to a patent) associated with...
-
Tom selis mutual funds on a graduated commission structure. He receives 3.1% on the first $40,000 of sales in a month 4.2% on the next $40,000, and 5.3% on all further sales. What are his gross...
-
A hamburger factory produces 55,000 hamburgers each week. The equipment used costs $15,000 and will remain productive for three years. The labor cost per year is $14,500. a. What is the productivity...
-
Goose Corporation, a C corporation, incurs a net capital loss of $12,000 for 2022. It also has ordinary income of $10,000 in 2022. Goose had net capital gains of $2,500 in 2018 and $5,000 in 2021. a....
-
Write a paper detailing a geographic information system (GIS) of your own design that would utilize data in an original manner.
-
Dogway Candy Company sells candy on consignment to "big-box" stores and currently has $\$ 1,000,000$ in accounts receivable. Its days sales outstanding (DSO) is 50 days (based on a 365-day year). The...
-
An investment bank agrees to underwrite a $ 500 million, 10-year, 8 percent semiannual bond issue for KDO Corporation on a firm commitment basis. The investment bank pays KDO on Thursday and plans to...
-
An investment bank pays $ 23.50 per share for 3,000,000 shares of the KDO Company. It then sells these shares to the public for $ 25. How much money does KDO receive? What is the investment bankers...
-
An investment bank pays $ 33.50 per share for 4 million shares of GM Company in a firm commitment stock offering. It then can sell those shares to the public for $ 32 per share. How much money does...
-
What strategies might you use to implement the personal change needed to support organizational change? What is the relevance of unity consciousness in organizational leadership, communications, and...
-
Recognizing the literature (and its limitations) for conveying policing organization, management, and change - what management/organizational changes are needed in policing today? Why? How do we set...
-
How do organizations effectively navigate the complexities of organizational change, integrating advanced change management methodologies to mitigate resistance and foster sustainable transformation?
Study smarter with the SolutionInn App