Project X has an NPV of $2,681 and an ANPV of $920.04. Project Y has an NPV of $1,778 and an ANPV of $1,079.54. Project Z has the highest NPV of $3,585 and ranks first when the ANPV approach is used to account for the unequal project lives. The ANPV approach results in Project Z being ranked first instead of Project X.
This document contains solutions to problems involving capital budgeting techniques. Problem P9-11 involves calculating the internal rate of return (IRR) for three projects - Project A has an IRR of 17%, Project B has an IRR between 8-9% (calculator solution of 8.62%), and Project C has an IRR between 25-26% (calculator solution of 25.41%). The IRR is the discount rate that makes the net present value of cash flows equal to zero. It is found by iteration or using a financial calculator.
The document contains multiple choice questions and problems related to accounting for foreign currency transactions and translation of financial statements. It provides details of foreign currency amounts, applicable exchange rates on various dates, and calculations of foreign exchange gains and losses. The questions and problems assess understanding of accounting entries and computations for various types of foreign currency transactions involving accounts receivable, accounts payable, sales, purchases and more.
O documento apresenta o balanço patrimonial e a apuração do resultado do exercício de uma empresa. Ele explica os ajustes necessários nas contas, como depreciação, provisão para devedores duvidosos e receitas antecipadas. Ao final, encerra as contas de resultado e contabiliza o lucro de R$700 mil no balanço patrimonial.
Este documento apresenta as contas de um balanço patrimonial e demonstração de resultados de uma empresa. Ele lista ativos como caixa, aplicações financeiras, estoque e máquinas; passivos como fornecedores e financiamentos; e contas como receita líquida, custo de vendas e despesas administrativas.
Horniman Horticulture, FIL 349 ( Advanced Financial Theory and Problems)CameronMcintosh8
Overview: This is a presentation on Horniman Horticulture, we have devised a Naïve and Revised forecast to extrapolate out the income statement and balance sheet from 2016 to 2018. Our presentation outlines the difference between Profits and Cash. Horniman Horticulture had high profitability but their cash balance was decreasing year-over-year. Our Revised Forecast applies our assumptions to create manageable growth without addition financing through debt or equity.
Problem: Horniman Horticulture started with a cash balance $120,000 at the end of 2012, then decreased to $9,400 at the end 2015. Cash was eroding year-over-year with no signs of stopping as the naive forecast shows they will have a negative cash balance in 2016 through 2018.
Solution/Assumption: We discovered that Horniman Horticulture was growing to fast for the business to fund its operations without debt or equity. Their cash cycle was above industry average with high receivable days, low payable days, and high inventory days. We kept payable days constant as the firm gets a 2% discount from suppliers when paid under 10 days. We increased receivable days and inventory days as they go to a more mature plant which increase gross margin. The change in cash cycle decreases revenue growth from 30% to and controllable growth of 8.3%.
O documento descreve os procedimentos contábeis para microempresas e empresas de pequeno porte inscritas no Simples, como registrar o valor devido mensalmente com base na receita bruta e as alíquotas aplicáveis. Também explica como registrar operações envolvendo cheques pré-datados para pagamentos e recebimentos.
This document contains solutions to problems involving capital budgeting techniques. Problem P9-11 involves calculating the internal rate of return (IRR) for three projects - Project A has an IRR of 17%, Project B has an IRR between 8-9% (calculator solution of 8.62%), and Project C has an IRR between 25-26% (calculator solution of 25.41%). The IRR is the discount rate that makes the net present value of cash flows equal to zero. It is found by iteration or using a financial calculator.
The document contains multiple choice questions and problems related to accounting for foreign currency transactions and translation of financial statements. It provides details of foreign currency amounts, applicable exchange rates on various dates, and calculations of foreign exchange gains and losses. The questions and problems assess understanding of accounting entries and computations for various types of foreign currency transactions involving accounts receivable, accounts payable, sales, purchases and more.
O documento apresenta o balanço patrimonial e a apuração do resultado do exercício de uma empresa. Ele explica os ajustes necessários nas contas, como depreciação, provisão para devedores duvidosos e receitas antecipadas. Ao final, encerra as contas de resultado e contabiliza o lucro de R$700 mil no balanço patrimonial.
Este documento apresenta as contas de um balanço patrimonial e demonstração de resultados de uma empresa. Ele lista ativos como caixa, aplicações financeiras, estoque e máquinas; passivos como fornecedores e financiamentos; e contas como receita líquida, custo de vendas e despesas administrativas.
Horniman Horticulture, FIL 349 ( Advanced Financial Theory and Problems)CameronMcintosh8
Overview: This is a presentation on Horniman Horticulture, we have devised a Naïve and Revised forecast to extrapolate out the income statement and balance sheet from 2016 to 2018. Our presentation outlines the difference between Profits and Cash. Horniman Horticulture had high profitability but their cash balance was decreasing year-over-year. Our Revised Forecast applies our assumptions to create manageable growth without addition financing through debt or equity.
Problem: Horniman Horticulture started with a cash balance $120,000 at the end of 2012, then decreased to $9,400 at the end 2015. Cash was eroding year-over-year with no signs of stopping as the naive forecast shows they will have a negative cash balance in 2016 through 2018.
Solution/Assumption: We discovered that Horniman Horticulture was growing to fast for the business to fund its operations without debt or equity. Their cash cycle was above industry average with high receivable days, low payable days, and high inventory days. We kept payable days constant as the firm gets a 2% discount from suppliers when paid under 10 days. We increased receivable days and inventory days as they go to a more mature plant which increase gross margin. The change in cash cycle decreases revenue growth from 30% to and controllable growth of 8.3%.
O documento descreve os procedimentos contábeis para microempresas e empresas de pequeno porte inscritas no Simples, como registrar o valor devido mensalmente com base na receita bruta e as alíquotas aplicáveis. Também explica como registrar operações envolvendo cheques pré-datados para pagamentos e recebimentos.
O documento discute diferentes sistemas de amortização para empréstimos e financiamentos de longo prazo, incluindo: (1) Sistema de Amortização Constante (SAC), no qual as amortizações do principal são sempre iguais; (2) Sistema de Amortização Francês (também chamado de Sistema Price), no qual as prestações são iguais e sucessivas; e (3) outros sistemas como Sistema de Amortização Misto e Sistema de Amortização Americano. O documento fornece fórmulas e exemp
El documento resume conceptos clave sobre la estructura de capital y apalancamiento de una empresa, incluyendo el riesgo de negocio vs. riesgo financiero, apalancamiento operativo y financiero, y la estructura óptima de capital. Explica cómo el uso de deuda afecta el riesgo para los accionistas.
O documento apresenta o primeiro material de um curso de contabilidade básica, contendo as 100 primeiras questões de concursos públicos. O autor disponibilizará mais duas partes com questões adicionais e inclui quadros com assuntos que caíram em provas anteriores para ajudar os estudantes. O material também contém exemplos de lançamentos contábeis e uma relação de 200 contas.
O documento fornece exemplos e explicações sobre como estruturar e classificar contas no balanço patrimonial de acordo com os princípios de liquidez e exigibilidade. Explica que no ativo as contas são dispostas por ordem decrescente de liquidez e no passivo por ordem decrescente de exigibilidade. Também fornece exemplos de como classificar diferentes tipos de contas (caixa, estoques, máquinas, empréstimos etc) como circulante ou não-circulante no ativo e passivo.
Contabilidade introdutória livro exercíciosPaulo Amorim
Este livro de exercícios foi elaborado para complementar o livro-texto de Contabilidade Introdutória. Contém exercícios resolvidos e propostos referentes aos principais tópicos abordados no livro-texto, como balanços patrimoniais, partidas dobradas, variações patrimoniais, operações com mercadorias e outros. Tem o objetivo de consolidar os conceitos contábeis apresentados no livro-texto.
O documento discute o plano de contas, lançamentos contábeis e método das partidas dobradas. O plano de contas é dividido em contas de ativo, passivo, despesas e receitas. São apresentados exemplos de lançamentos contábeis e exercícios para identificar contas e fatos ocorridos.
Este documento presenta varios ejercicios resueltos sobre la selección de inversiones utilizando criterios como el valor actual neto y el plazo de recuperación. En los ejercicios se analizan diferentes proyectos de inversión considerando sus flujos de caja y la tasa de descuento, y se determina cuál es la opción más rentable según cada criterio. El documento concluye explicando que el valor actual neto es un criterio más completo que el plazo de recuperación al tener en cuenta todos los flujos de caja y su valor en
The document provides model answers and guidance for the LCCI International Qualifications Cost Accounting Level 3 exam, including reproducing exam questions, summarizing expected answers, and providing additional helpful hints. It is intended as a teaching tool to help teachers, candidates, and centers prepare for the LCCI exam and achieve a distinction grade. The general standard of the model answers aims to achieve a distinction level of response.
O documento explica os métodos direto e indireto da Demonstração do Fluxo de Caixa (DFC). O método direto mostra diretamente os pagamentos e recebimentos que afetam o caixa. O método indireto parte do lucro líquido e faz ajustes para chegar ao fluxo de caixa gerado pelas operações. A diferença entre os métodos está apenas na forma de evidenciar os fluxos operacionais.
Fonderia di torino case study group1_2016Cynthia Hanna
Fonderia di Torino is considering purchasing a new automated molding machine to reduce costs and improve production quality. The initial investment is €1.01 million but after accounting for the sale of old machines, the net cost is €813,296. Using a weighted average cost of capital of 9.86%, the net present value of the investment is positive at €22,916, indicating it would be profitable. While there may be layoff costs for workers on old machines, the company would still profit even after paying one year of salaries. Sensitivity analysis shows the investment remains profitable even if inflation increases to 5% annually. Non-financial benefits also support the new machine purchase.
This document contains solutions to problems involving capital budgeting techniques. Problem P9-11 involves calculating the internal rate of return (IRR) for three projects - Project A has an IRR of 17%, Project B has an IRR between 8-9% (calculator solution of 8.62%), and Project C has an IRR between 25-26% (calculator solution of 25.41%). The IRR is the discount rate that makes the net present value of cash flows equal to zero. It is used to evaluate mutually exclusive projects and determine the maximum cost of capital for project acceptability.
(1) This document provides solutions to problems related to time value of money concepts such as future value, present value, and compound interest calculations.
(2) It includes examples of using the future value formula to calculate future values over different time periods and interest rates. It also shows how to use future value tables to solve for unknown time periods.
(3) Several problems demonstrate using the present value formula to calculate present values of future lump sums, and how higher discount rates result in lower present values. Comparisons are made between investment alternatives based on their present values.
O documento discute diferentes sistemas de amortização para empréstimos e financiamentos de longo prazo, incluindo: (1) Sistema de Amortização Constante (SAC), no qual as amortizações do principal são sempre iguais; (2) Sistema de Amortização Francês (também chamado de Sistema Price), no qual as prestações são iguais e sucessivas; e (3) outros sistemas como Sistema de Amortização Misto e Sistema de Amortização Americano. O documento fornece fórmulas e exemp
El documento resume conceptos clave sobre la estructura de capital y apalancamiento de una empresa, incluyendo el riesgo de negocio vs. riesgo financiero, apalancamiento operativo y financiero, y la estructura óptima de capital. Explica cómo el uso de deuda afecta el riesgo para los accionistas.
O documento apresenta o primeiro material de um curso de contabilidade básica, contendo as 100 primeiras questões de concursos públicos. O autor disponibilizará mais duas partes com questões adicionais e inclui quadros com assuntos que caíram em provas anteriores para ajudar os estudantes. O material também contém exemplos de lançamentos contábeis e uma relação de 200 contas.
O documento fornece exemplos e explicações sobre como estruturar e classificar contas no balanço patrimonial de acordo com os princípios de liquidez e exigibilidade. Explica que no ativo as contas são dispostas por ordem decrescente de liquidez e no passivo por ordem decrescente de exigibilidade. Também fornece exemplos de como classificar diferentes tipos de contas (caixa, estoques, máquinas, empréstimos etc) como circulante ou não-circulante no ativo e passivo.
Contabilidade introdutória livro exercíciosPaulo Amorim
Este livro de exercícios foi elaborado para complementar o livro-texto de Contabilidade Introdutória. Contém exercícios resolvidos e propostos referentes aos principais tópicos abordados no livro-texto, como balanços patrimoniais, partidas dobradas, variações patrimoniais, operações com mercadorias e outros. Tem o objetivo de consolidar os conceitos contábeis apresentados no livro-texto.
O documento discute o plano de contas, lançamentos contábeis e método das partidas dobradas. O plano de contas é dividido em contas de ativo, passivo, despesas e receitas. São apresentados exemplos de lançamentos contábeis e exercícios para identificar contas e fatos ocorridos.
Este documento presenta varios ejercicios resueltos sobre la selección de inversiones utilizando criterios como el valor actual neto y el plazo de recuperación. En los ejercicios se analizan diferentes proyectos de inversión considerando sus flujos de caja y la tasa de descuento, y se determina cuál es la opción más rentable según cada criterio. El documento concluye explicando que el valor actual neto es un criterio más completo que el plazo de recuperación al tener en cuenta todos los flujos de caja y su valor en
The document provides model answers and guidance for the LCCI International Qualifications Cost Accounting Level 3 exam, including reproducing exam questions, summarizing expected answers, and providing additional helpful hints. It is intended as a teaching tool to help teachers, candidates, and centers prepare for the LCCI exam and achieve a distinction grade. The general standard of the model answers aims to achieve a distinction level of response.
O documento explica os métodos direto e indireto da Demonstração do Fluxo de Caixa (DFC). O método direto mostra diretamente os pagamentos e recebimentos que afetam o caixa. O método indireto parte do lucro líquido e faz ajustes para chegar ao fluxo de caixa gerado pelas operações. A diferença entre os métodos está apenas na forma de evidenciar os fluxos operacionais.
Fonderia di torino case study group1_2016Cynthia Hanna
Fonderia di Torino is considering purchasing a new automated molding machine to reduce costs and improve production quality. The initial investment is €1.01 million but after accounting for the sale of old machines, the net cost is €813,296. Using a weighted average cost of capital of 9.86%, the net present value of the investment is positive at €22,916, indicating it would be profitable. While there may be layoff costs for workers on old machines, the company would still profit even after paying one year of salaries. Sensitivity analysis shows the investment remains profitable even if inflation increases to 5% annually. Non-financial benefits also support the new machine purchase.
This document contains solutions to problems involving capital budgeting techniques. Problem P9-11 involves calculating the internal rate of return (IRR) for three projects - Project A has an IRR of 17%, Project B has an IRR between 8-9% (calculator solution of 8.62%), and Project C has an IRR between 25-26% (calculator solution of 25.41%). The IRR is the discount rate that makes the net present value of cash flows equal to zero. It is used to evaluate mutually exclusive projects and determine the maximum cost of capital for project acceptability.
(1) This document provides solutions to problems related to time value of money concepts such as future value, present value, and compound interest calculations.
(2) It includes examples of using the future value formula to calculate future values over different time periods and interest rates. It also shows how to use future value tables to solve for unknown time periods.
(3) Several problems demonstrate using the present value formula to calculate present values of future lump sums, and how higher discount rates result in lower present values. Comparisons are made between investment alternatives based on their present values.
(1) This document contains solutions to problems related to time value of money concepts such as compounding, discounting, future value, present value, and annuities.
(2) Financial managers rely more on present value than future value because they typically make decisions at time zero, as does the present value calculation.
(3) As the discount rate increases or the time until receipt of a future payment increases, the present value of that payment decreases. Higher discount rates or longer times reflect higher opportunity costs.
This document contains solutions to problems related to time value of money concepts. Problem 4-1 provides the solution to using a timeline to analyze financial decisions. Problems 4-2 through 4-4 involve calculations of future value using the future value formula and tables. Problems 4-5 through 4-9 apply time value concepts to personal finance scenarios involving compound interest calculations. Problems 4-10 through 4-12 deal with present value calculations and conversions between future and present value. Problems 4-13 through 4-17 continue applying these time value of money principles to additional personal finance examples.
This document provides solutions to capital budgeting problems involving techniques like payback period, net present value (NPV), and internal rate of return (IRR). For problem E10-1, the payback periods for two projects are provided. For other problems, the cash flows for projects are input into a financial calculator to calculate NPV or IRR in order to evaluate which projects should be accepted. The solutions demonstrate how to apply these capital budgeting techniques to make investment decisions.
The document provides an overview of various capital budgeting techniques including payback period, net present value (NPV), internal rate of return (IRR), profitability index, and modified internal rate of return (MIRR). It discusses how to apply these methods to evaluate independent and mutually exclusive projects. It also covers topics like capital rationing, increasing marginal cost of capital, and choosing the optimal economic life of a project.
This document discusses capital budgeting techniques used to evaluate long-term investment projects. It describes various methods like payback period, net present value, internal rate of return, and profitability index. These techniques are used to analyze projects, compare alternatives, and determine whether to accept or reject projects based on criteria like NPV being positive or IRR exceeding the hurdle rate. The document also discusses potential issues that can arise with ranking projects under conditions of capital rationing or mutually exclusive choices.
capital budgeting In financial managementssuserc3bdcc
The document discusses various capital budgeting techniques used to evaluate projects, including payback period, net present value, internal rate of return, and profitability index. It provides examples of how to calculate each measure and accept or reject projects based on established criteria. Potential issues that can arise with project rankings are also examined, such as conflicts from projects with different scales, cash flow patterns, or time horizons.
The group is analyzing an investment in Lockheed's Tri Star aircraft. They are considering whether to invest in the L-1011 Tri Star or its competitors, the DC-10 trijet and Airbus A-300B. The group will use capital budgeting techniques like net present value (NPV) and internal rate of return (IRR) to evaluate the investments and make a recommendation. Capital budgeting is the process used by businesses to determine whether projects such as new equipment or facilities provide sufficient returns to justify the capital expenditures required.
Managerial Finance By Gitman Chapter 8 solutionsQaisar Mehar
The document contains solutions to warm-up exercises and problems related to finance topics like expected return, standard deviation, coefficient of variation, portfolio analysis, and risk measurement. For a given portfolio, the expected return is calculated as the weighted average of the returns weighted by their probabilities. The standard deviation and coefficient of variation are computed to assess the risk of different assets and portfolios. Overall, the document demonstrates various calculations for key risk and return metrics used to analyze investments.
This document discusses various capital budgeting techniques used to evaluate investment projects. It defines capital budgeting as the process of identifying, analyzing and selecting long-term investment projects. The key techniques covered are payback period, internal rate of return (IRR), net present value (NPV) and profitability index (PI). For an example project with $10,000-$15,000 cash flows over 5 years and $40,000 initial cost, the document calculates the metrics and determines that the project should be rejected based on IRR, NPV and PI, though accepted by payback period. It also discusses how the techniques can provide contradictory results for mutually exclusive projects.
cost of capital .....ch ...of financial management ..solution by MIAN MOHSIN ...mianmohsinmumtazshb
The document provides solutions to problems from Chapter 11 on the cost of capital.
It calculates the cost of various sources of capital such as debt, preferred stock, and common equity. It also calculates the weighted average cost of capital (WACC) using different capital structure weights.
Key calculations include:
1) Calculating the cost of debt using the yield to maturity method and the approximation method.
2) Calculating the cost of preferred stock as the dividend yield.
3) Calculating the cost of common equity using the capital asset pricing model.
4) Calculating the WACC using both book value and market value weights for the capital structure.
5) Exploring how
This document contains solutions to problems related to risk and return from Chapter 5. Problem P5-1 calculates rates of return for two investments. Investment X has a higher rate of return of 12.5% compared to 12.36% for Investment Y. Problem P5-1 concludes that Investment X should be selected. Problem P5-9 assesses the return and risk of two projects, Project 257 and Project 432, by calculating their expected returns, standard deviations, ranges, and coefficients of variation to determine which project has lower risk.
working capital ch solution financial management ....mohsin mumtazmianmohsinmumtazshb
The document discusses solutions to problems related to working capital and current asset management. It addresses topics such as cash conversion cycle, economic order quantity, accounts receivable management, and cash management techniques. The problems calculate financial metrics and evaluate strategies for reducing costs and improving profitability within the constraints of various assumptions provided in the questions.
1. The document provides examples of time value of money problems involving present value, future value, interest rates, and number of periods calculations. It gives the calculations for various cash flows received or paid in different periods with different interest rates.
2. It includes problems calculating NPV for projects such as factories, machines, and ships where the cash flows include costs, revenues, operating costs, refit costs, and salvage value over multiple periods.
3. The last examples calculate the amount of annual savings needed to buy a boat in 5 years and the annual annuity payment an individual can expect based on investing a present value over their life expectancy.
The document discusses concepts related to project cash flow analysis including relevant cash flows, unequal project lives, abandonment value, inflation, and cash flow estimation bias. It provides an example project with initial outlay, operating cash flows, tax rate, salvage value, and cash flows over 4 years. It calculates NPV, IRR, MIRR, and payback for the example project. The document also discusses making decisions between mutually exclusive projects using replacement chains and equivalent annual annuity analysis.
Managerial economics studies how to direct scarce resources efficiently to achieve managerial goals. Levi Strauss & Co. paid $46,532 for a 110-year-old pair of jeans in an eBay auction, representing consumer-consumer rivalry as buyers competed for the antique item. The maximum amount to pay for an asset generating $150,000 income annually for 5 years with a 9% opportunity cost is $583,458. Net benefits are maximized at a quantity of 2 units for a firm with total benefit of B(Q)=150+28Q-5Q^2 and total cost of C(Q)=100+8Q.
This document provides an overview of capital budgeting techniques. It discusses key capital budgeting concepts like net present value (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index. It also covers capital budgeting methods like payback period and discounted payback period. The document uses examples of evaluating franchise investment projects to illustrate how to apply these concepts and methods.
Chapter 9.Risk and Managerial Options in Capital BudgetingZahraMirzayeva
The document discusses capital budgeting and project risk considerations. It defines capital budgeting as the process of identifying, analyzing, and selecting long-term investment projects. The capital budgeting process involves generating proposals, evaluating cash flows, selecting projects, and reevaluating projects. Projects are evaluated using methods like payback period, IRR, NPV, and profitability index. Risk is considered through total risk, variance, standard deviation, and coefficient of variation calculations for project cash flows under different states. Probability trees can also be used to organize possible cash flow streams and joint probabilities.
The document provides examples and solutions to international managerial finance problems. It discusses the impact of tax credits on the receipt of dividends by a multinational corporation from foreign subsidiaries. It also addresses the translation of financial statements between currencies and determining the most effective sources of investment and borrowing given exchange rate forecasts. Finally, it considers the ethics of a company prioritizing ethics over maximizing profits in business decisions.
The document contains solutions to practice problems related to mergers and acquisitions. Problem 17-1 discusses the tax effects of an acquisition, finding that the tax savings are less than the cost of the merger. Problem 17-2 also examines tax effects, determining that a proposed merger is recommended based on positive net benefit. Problem 17-3 evaluates the present value of tax benefits for two potential acquisition targets.
This document contains solutions to problems from Chapter 16 on hybrid and derivative securities. The problems cover various topics such as lease cash flows, loan interest calculations, loan amortization schedules, comparing leases to purchases, determining values of convertible bonds and attached warrants, and calculating theoretical warrant values. The solutions provide numerical calculations and explanations for each problem.
This document contains solutions to practice problems about current liabilities management. It addresses topics like cash discounts, credit terms, accounts receivable financing, inventory financing, and the costs associated with different sources of short-term financing like bank loans, commercial paper, and factoring. The problems calculate effective interest rates and costs of various short-term financing options to determine the most cost effective alternative for different scenarios. Ethics considerations around accounts receivable financing are also discussed.
This document contains solutions to 16 problems related to working capital and current asset management. The problems cover topics such as cash conversion cycle calculation and analysis, economic order quantity modeling, accounts receivable management, cash discounts, and float. For each problem, the relevant calculations and recommendations are shown. An ethics problem at the end questions the practice of banks locating controlled disbursement accounts in very distant locations from the client company.
This document contains solutions to problems related to chapter 13 on dividend policy. Problem P13-1 discusses procedures for declaring a cash dividend, including journal entries to record the declaration and payment. Problem P13-2 discusses ex-dividend dates and whether an investor would be better off buying stock before or after the ex-dividend date. Problem P13-3 discusses residual dividend policy, where a firm pays dividends from funds left over after meeting investment requirements.
This document contains solutions to problems related to leverage and capital structure.
Some key points summarized:
1) Breakeven analysis is performed for multiple companies using algebraic formulas to calculate the quantity needed to break even. Comparisons are made between companies' operating leverage.
2) Graphs are used to show the relationship between sales, costs, profits and losses at different production levels as well as to illustrate how degree of operating leverage decreases as production increases past the breakeven point.
3) Calculations are shown for earnings per share under different financing plans and levels of earnings before interest and taxes to demonstrate how degree of financial leverage is affected.
4) Integrated examples bring together concepts of operating
The document contains solutions to problems related to calculating the cost of capital, including the cost of debt using both the net present value and yield-to-maturity methods, the cost of preferred stock, the weighted average cost of capital using both book and market weights, and the effect of tax rates on the WACC. It also covers the capital asset pricing model for calculating the cost of common equity. The problems provide examples of calculating costs of different sources of capital and determining the WACC for companies based on their capital structure.
This document provides sample problems and solutions for calculating capital budgeting cash flows. It begins with an introduction stating the document will use 5-year projects and assets with lives equal to cash flow years. It then presents 18 sample problems covering topics like classification of expenditures, basic terminology, relevant cash flows, sunk costs, book value, taxes, depreciation, incremental cash flows, and expense reductions. The problems include calculations for initial investments, proceeds from asset sales, tax implications, and development of cash flow schedules to evaluate projects.
This document contains solutions to problems from Chapter 7 on stock valuation. Problem P7-1 discusses calculating the maximum shares available for sale and additional shares needed to raise funds. Problem P7-2 discusses calculating preferred dividends that are cumulative versus non-cumulative. The remaining problems calculate stock prices and values using various models including zero growth, constant growth, and variable growth models.
1) The document provides solutions to problems related to interest rates and bond valuation. It includes calculations of real rates of return, nominal interest rates, yield curves, and bond valuations.
2) Bond valuations are calculated using the present value of interest payments and maturity value. Changes in required returns impact bond values, with higher required returns lowering prices.
3) Yield curves from the past show how expectations of future interest rates have changed over time, from stable to downward sloping to upward sloping. Risk premiums incorporate default, interest rate, liquidity, and other risks.
Introduction to AI for Nonprofits with Tapp NetworkTechSoup
Dive into the world of AI! Experts Jon Hill and Tareq Monaur will guide you through AI's role in enhancing nonprofit websites and basic marketing strategies, making it easy to understand and apply.
The simplified electron and muon model, Oscillating Spacetime: The Foundation...RitikBhardwaj56
Discover the Simplified Electron and Muon Model: A New Wave-Based Approach to Understanding Particles delves into a groundbreaking theory that presents electrons and muons as rotating soliton waves within oscillating spacetime. Geared towards students, researchers, and science buffs, this book breaks down complex ideas into simple explanations. It covers topics such as electron waves, temporal dynamics, and the implications of this model on particle physics. With clear illustrations and easy-to-follow explanations, readers will gain a new outlook on the universe's fundamental nature.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
Assessment and Planning in Educational technology.pptxKavitha Krishnan
In an education system, it is understood that assessment is only for the students, but on the other hand, the Assessment of teachers is also an important aspect of the education system that ensures teachers are providing high-quality instruction to students. The assessment process can be used to provide feedback and support for professional development, to inform decisions about teacher retention or promotion, or to evaluate teacher effectiveness for accountability purposes.
Thinking of getting a dog? Be aware that breeds like Pit Bulls, Rottweilers, and German Shepherds can be loyal and dangerous. Proper training and socialization are crucial to preventing aggressive behaviors. Ensure safety by understanding their needs and always supervising interactions. Stay safe, and enjoy your furry friends!
it describes the bony anatomy including the femoral head , acetabulum, labrum . also discusses the capsule , ligaments . muscle that act on the hip joint and the range of motion are outlined. factors affecting hip joint stability and weight transmission through the joint are summarized.
How to Manage Your Lost Opportunities in Odoo 17 CRMCeline George
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1. Chapter 10
Risk and Refinements in Capital Budgeting
Solutions to Problems
P10-1. LG 1: Recognizing Risk
Basic
(a) & (b)
Project Risk Reason
A Low The cash flows from the project can be easily determined
since this expenditure consists strictly of outflows. The
amount is also relatively small.
B Medium The competitive nature of the industry makes it so that
Caradine will need to make this expenditure to remain
competitive. The risk is only moderate since the firm
already has clients in place to use the new technology.
C Medium Since the firm is only preparing a proposal, their
commitment at this time is low. However, the $450,000 is
a large sum of money for the company and it will
immediately become a sunk cost.
D High Although this purchase is in the industry in which
Caradine normally operates, they are encountering a large
amount of risk. The large expenditure, the competitiveness
of the industry, and the political and exchange risk of
operating in a foreign country adds to the uncertainty.
NOTE: Other answers are possible depending on the assumptions a student may make. There
is too little information given about the firm and industry to establish a definitive risk analysis.
P10-2. LG 2: Breakeven Cash Flows
Intermediate
(a) $35,000 = CF(PVIFA14%,12)
$35,000 = CF(5.66)
CF = $6,183.75
Calculator solution: $6,183.43
(b) $35,000 = CF(PVIFA10%,12)
$35,000 = CF(6.814)
CF = $5,136.48
Calculator solution: $5,136.72
2. Chapter 10 Risk and Refinements in Capital Budgeting 253
The required cash flow per year would decrease by $1,047.27.
P10-3. LG 2: Breakeven Cash Inflows and Risk
Intermediate
(a) Project X Project Y
PVn = PMT × (PVIFA15%,5 yrs.) PVn = PMT × (PVIFA15%,5 yrs.)
PVn = $10,000 × (3.352) PVn = $15,000 × (3.352)
PVn = $33,520 PVn = $50,280
NPV = PVn − Initial investment NPV = PVn − Initial investment
NPV = $33,520 − $30,000 NPV = $50,280 − $40,000
NPV = $3,520 NPV = $10,280
Calculator solution: $3,521.55 Calculator solution: $10,282.33
(b) Project X Project Y
$CF × 3.352 = $30,000 $CF × 3.352 = $40,000
$CF = $30,000 ÷ 3.352 $CF = $40,000 ÷ 3.352
$CF = $8,949.88 $CF = $11,933.17
(c) Project X Project Y
Probability = 60% Probability = 25%
(d) Project Y is more risky and has a higher potential NPV. Project X has less risk and less
return while Project Y has more risk and more return, thus the risk-return trade-off.
(e) Choose Project X to minimize losses; to achieve higher NPV, choose Project Y.
P10-4. LG 2: Basic Sensitivity Analysis
Intermediate
(a) Range A = $1,800 − $200 = $1,600 Range B = $1,100 − $900 = $200
(b)
NPV
Project A Project B
Outcome Table Value
Calculator
Solution Table Value
Calculator
Solution
Pessimistic −$6,297 −$6,297.29 −$337 −$337.79
Most likely 514 513.56 514 513.56
Optimistic 7,325 7,324.41 1,365 1,364.92
Range $13,622 $13,621.70 $1,702 $1,702.71
(c) Since the initial investment of projects A and B are equal, the range of cash flows and the
range of NPVs are consistent.
(d) Project selection would depend upon the risk disposition of the management. (A is more
risky than B but also has the possibility of a greater return.)
3. 254 Part 3 Long-Term Investment Decisions
P10-5. LG 2: Sensitivity Analysis
Intermediate
(a) Range P = $1,000 − $500 = $500
Range Q = $1,200 − $400 = $800
(b)
NPV
Project A Project B
Outcome Table Value
Calculator
Solution Table Value
Calculator
Solution
Pessimistic $73 $72.28 −$542 −$542.17
Most likely 1,609 1,608.43 1,609 1,608.43
Optimistic 3,145 3,144.57 4,374 4,373.48
(c) Range P =$3,145 − $73 = $3,072 (Calculator solution: $3,072.29)
Range Q =$4,374 − (−$542) = $4,916 (Calculator solution: $4,915.65)
Each computer has the same most likely result. Computer Q has both a greater potential loss
and a greater potential return. Therefore, the decision will depend on the risk disposition of
management.
P10-6. LG 2: Simulation
Intermediate
(a) Ogden Corporation could use a computer simulation to generate the respective profitability
distributions through the generation of random numbers. By tying various cash flow
assumptions together into a mathematical model and repeating the process numerous times, a
probability distribution of project returns can be developed. The process of generating
random numbers and using the probability distributions for cash inflows and outflows allows
values for each of the variables to be determined. The use of the computer also allows for
more sophisticated simulation using components of cash inflows and outflows. Substitution
of these values into the mathematical model yields the NPV. The key lies in formulating a
mathematical model that truly reflects existing relationships.
(b) The advantages to computer simulations include the decision maker’s ability to view a
continuum of risk-return trade-offs instead of a single-point estimate. The computer
simulation, however, is not feasible for risk analysis.
P10-7. LG 4: Risk–Adjusted Discount Rates-Basic
Intermediate
(a) Project E
PVn = $6,000 × (PVIFA15%,4)
PVn = $6,000 × 2.855
PVn = $17,130
NPV = $17,130 − $15,000
NPV = $2,130
Calculator solution: $2,129.87
4. Chapter 10 Risk and Refinements in Capital Budgeting 255
Project F
Year CF PVIF15%,n PV
1 $6,000 0.870 $5,220
2 4,000 0.756 3,024
3 5,000 0.658 3,290
4 2,000 0.572 1,144
$12,678
NPV = $12,678 − $11,000
NPV = $1,678
Calculator solution: $1,673.05
Project G
Year CF PVIF15%,n PV
1 $4,000 0.870 $3,480
2 6,000 0.756 4,536
3 8,000 0.658 5,264
4 12,000 0.572 6,864
$20,144
NPV = $20,144 − $19,000
NPV = $1,144
Calculator solution: $1,136.29
Project E, with the highest NPV, is preferred.
(b) RADRE = 0.10 + (1.80 × (0.15 − 0.10)) = 0.19
RADRF = 0.10 + (1.00 × (0.15 − 0.10)) = 0.15
RADRG = −0.10 + (0.60 × (0.15 − 0.10)) = 0.13
(c) Project E
$6,000 × (2.639) = $15,834
NPV = $15,834 − $15,000
NPV = $834
Calculator solution: $831.51
Project F
Same as in (a), $1,678 (Calculator solution: $1,673.05)
5. 256 Part 3 Long-Term Investment Decisions
Project G
6. Chapter 10 Risk and Refinements in Capital Budgeting 257
Year CF PVIF13%,n PV
1 $4,000 0.885 $3,540
2 6,000 0.783 4,698
3 8,000 0.693 5,544
4 12,000 0.613 7,356
$21,138
NPV = $21,138 − $19,000
NPV = $2,138
Calculator solution: $2,142.93
Rank Project
1 G
2 F
3 E
(d) After adjusting the discount rate, even though all projects are still acceptable, the ranking
changes. Project G has the highest NPV and should be chosen.
P10-8. LG 4: Risk-adjusted Discount rates-Tabular
Intermediate
(a) NPVA = ($7,000 × 3.993) − $20,000
NPVA = $7,951 (Use 8% rate)
Calculator solution: $7,948.97
NPVB = ($10,000 × 3.443) − $30,000
NPVB = $4,330 (Use 14% rate)
Calculator solution: $4,330.81
Project A, with the higher NPV, should be chosen.
(b) Project A is preferable to Project B, since the net present value of A is greater than the net
present value of B.
P10-9. LG 4: Risk-adjusted Rates of Return using CAPM
Challenge
(a) kX = 7% + 1.2(12% − 7%) = 7% + 6% = 13%
kY = 7% + 1.4(12% − 7%) = 7% + 7% = 14%
NPVX = $30,000(PVIFA13%,4) − $70,000
NPVX = $30,000(2.974) − $70,000
NPVX = $89,220 − $70,000 = $19,220
NPVY = $22,000(PVIF14%,1) + $32,000(PVIF14%,2) + $38,000(PVIF14%3)
+ $46,000(PVIF14%,4) − $70,000
NPVY = $22,000(0.877) + $32,000(0.769) + $38,000(0.675) + $46,000(0.592) − $70,000
NPVY = $19,294 + $24,608 + $25,650 + $27,232 − 70,000 = $26,784
7. 258 Part 3 Long-Term Investment Decisions
(b) The RADR approach prefers Y over X. The RADR approach combines the risk adjustment
and the time adjustment in a single value. The RADR approach is most often used in
business.
P10-10.LG 4: Risk Classes and RADR
Basic
(a) Project X
Year CF PVIF22%,n PV
1 $80,000 0.820 $65,600
2 70,000 0.672 47,040
3 60,000 0.551 33,060
4 60,000 0.451 27,060
5 60,000 0.370 22,200
$194,960
NPV = $194,960 − $180,000
NPV = $14,960
Calculator solution: $14,930.45
Project Y
Year CF PVIF13%,n PV
1 $50,000 0.885 $44,250
2 60,000 0.783 46,980
3 70,000 0.693 48,510
4 80,000 0.613 49,040
5 90,000 0.543 48,870
$237,650
NPV = $237,650 − $235,000
NPV = $2,650
Calculator solution: $2,663.99
Project Z
Year CF PVIFA15%,5 PV
1 $90,000
2 $90,000
3 $90,000 3.352 $301,680
4 $90,000
5 $90,000
NPV = $301,680 − $310,000
NPV = −$8,320
Calculator solution: −$8,306.04
(b) Projects X and Y are acceptable with positive NPV’s, while Project Z with a negative NPV is
not. Project X with the highest NPV should be undertaken.
8. Chapter 10 Risk and Refinements in Capital Budgeting 259
P10-11.LG 5: Unequal Lives–ANPV Approach
Intermediate
(a) Machine A
PVn = PMT × (PVIFA12%,6 yrs.)
PVn = $12,000 × (4.111)
PVn = $49,332
NPV = PVn − Initial investment
NPV = $49,332 − $92,000
NPV = −$42,668
Calculator solution: − $42,663.11
Machine B
Year CF PVIFA12%,n PV
1 $10,000 0.893 $8,930
2 20,000 0.797 15,940
3 30,000 0.712 21,360
4 40,000 0.636 25,440
$71,670
NPV = $71,670 − $65,000
NPV = $6,670
Calculator solution: $6,646.58
Machine C
PVn = PMT × (PVIFA12%,5 yrs.)
PVn = $30,000 × 3.605
PVn = $108,150
NPV = PVn − Initial investment
NPV = $108,150 − $ 100,500
NPV = $7,650
Calculator solution: $7,643.29
Rank Project
1 C
2 B
3 A
(Note that A is not acceptable and could be rejected without any additional analysis.)
(b)
j
j
k%,nj
NPV
Annualized NPV (ANPV)
PVIFA
=
Machine A
ANPV = −$42,668 ÷ 4.111 (12%,6 years)
ANPV = −$10,378
9. 260 Part 3 Long-Term Investment Decisions
Machine B
ANPV = $6,670 ÷ 3.037 (12%,4 years)
ANPV = $2,196
Machine C
ANPV = $7,650 ÷ 3.605 (12%,5 years)
ANPV = $2,122
Rank Project
1 B
2 C
3 A
(c) Machine B should be acquired since it offers the highest ANPV. Not considering the
difference in project lives resulted in a different ranking based in part on C’s NPV
calculations.
P10-12.LG 5: Unequal Lives–ANPV Approach
Intermediate
(a) Project X
Year CF PVIF14%,n PV
1 $17,000 0.877 $14,909
2 25,000 0.769 19,225
3 33,000 0.675 22,275
4 41,000 0.592 24,272
$80,681
NPV = $80,681 − $78,000
NPV = $2,681
Calculator solution: $2,698.32
Project Y
Year CF PVIF14%,n PV
1 $28,000 0.877 $24,556
2 38,000 0.769 29,222
$53,778
NPV = $53,778 − $52,000
NPV = $1,778
Calculator solution: $1,801.17
Project Z
PVn = PMT × (PVIFA14%,8 yrs.)
PVn = $15,000 × 4.639
PVn = $69,585
NPV = PVn − Initial investment
10. Chapter 10 Risk and Refinements in Capital Budgeting 261
NPV = $69,585 − $66,000
NPV = $3,585
Calculator solution: $3,582.96
Rank Project
1 Z
2 X
3 Y
(b)
j
j
k%,nj
NPV
Annualized NPV (ANPV)=
PVIFA
Project X
ANPV = $2,681 ÷ 2.914 (14%,4 yrs.)
ANPV = $920.04
Project Y
ANPV = $1,778 ÷ 1.647 (14%,2 yrs.)
ANPV = $1,079.54
Project Z
ANPV = $3,585 ÷ 4.639 (14%,8 yrs.)
ANPV = $772.80
Rank Project
1 Y
2 X
3 Z
(c) Project Y should be accepted. The results in (a) and (b) show the difference in NPV when
differing lives are considered.
P10-13.LG 5: Unequal Lives–ANPV Approach
Intermediate
(a) Sell
Year CF PVIF12%,n PV
1 $200,000 0.893 $178,600
2 250,000 0.797 199,250
$377,850
NPV = $377,850 − $200,000
NPV = $177,850
Calculator solution: $177,786.90
12. Chapter 10 Risk and Refinements in Capital Budgeting 263
(c) Comparing projects of unequal lives gives an advantage to those projects that generate cash
flows over the longer period. ANPV adjusts for the differences in the length of the projects
and allows selection of the optimal project.
P10-14.LG 6: Real Options and the Strategic NPV
Intermediate
(a) Value of real options = value of abandonment + value of expansion + value of delay
Value of real options = (0.25 × $1,200) + (0.30 × $3,000) + (0.10 × $10,000)
Value of real options = $300 + $900 + $1,000
Value of real options = $2,200
NPVstrategic = NPVtraditional + Value of real options
NPVstrategic = −1,700 + 2,200 = $500
(b) Due to the added value from the options Rene should recommend acceptance of the capital
expenditures for the equipment.
(c) In general this problem illustrates that by recognizing the value of real options a project that
would otherwise be unacceptable (NPVtraditional < 0) could be acceptable (NPVstrategic > 0). It is
thus important that management identify and incorporate real options into the NPV process.
P10-15.LG 6: Capital Rationing–IRR and NPV Approaches
Intermediate
(a) Rank by IRR
Project IRR Initial Investment Total Investment
F 23% $2,500,000 $2,500,000
E 22 800,000 3,300,000
G 20 1,200,000 4,500,000
C 19
B 18
A 17
D 16
Projects F, E, and G require a total investment of $4,500,000 and provide a total present
value of $5,200,000, and therefore a net present value of $700,000.
13. 264 Part 3 Long-Term Investment Decisions
(b) Rank by NPV (NPV = PV – Initial investment)
Project NPV Initial Investment
F $500,000 $2,500,000
A 400,000 5,000,000
C 300,000 2,000,000
B 300,000 800,000
D 100,000 1,500,000
G 100,000 1,200,000
E 100,000 800,000
Project A can be eliminated because, while it has an acceptable NPV, its initial investment
exceeds the capital budget. Projects F and C require a total initial investment of $4,500,000
and provide a total present value of $5,300,000 and a net present value of $800,000.
However, the best option is to choose Projects B, F, and G, which also use the entire capital
budget and provide an NPV of $900,000.
(c) The internal rate of return approach uses the entire $4,500,000 capital budget but provides
$200,000 less present value ($5,400,000 − $5,200,000) than the NPV approach. Since the
NPV approach maximizes shareholder wealth, it is the superior method.
(d) The firm should implement Projects B, F, and G, as explained in part (c).
P10-16.LG 6: Capital Rationing–NPV Approach
Intermediate
(a)
Project PV
A $384,000
B 210,000
C 125,000
D 990,000
E 570,000
F 150,000
G 960,000
(b) The optimal group of projects is Projects C, F, and G, resulting in a total net present value of
$235,000.
P10-17.Ethics Problem
Challenge
If on the average 19 projects are successful, while one results in the entire (100%) loss of invested
capital the total then (100/19 = 5.26%) of business risk premium needs to be added to the required
rate of return to compensate for the loss. However, many firms may charge more than that and
make extra profit for the ability to take additional risk.