The Capital Expenditures Budget lays out thecompany's plans tomaintain capital assets such as property,plant, and equipment.O purchase capital assets such asproperty, plant, and equipment.O sell capital assets such as property,plant, and equipment.If a company expects to earn $600,000 inrevenues in a given month, they should expectto collect $600,000 in cash as well.TrueFalse

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Capital Budgeting Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 13% to evaluate projects such as these. Time Project A Cash Flows Project B Cash Flows 0 -$46,800 -$63,600 1 -21,600 20,400 2 43,200 20,400 3 43,200 20,400 4 43,200 20,400 5 -28,800 20,400 Calculate the IRR and MIRR of projects A & B. Assume a reinvestment rate of 13% for the calculation of MIRR.
Capital Budgeting Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 13% to evaluate projects such as these. Time Project A Cash Flows Project B Cash Flows 0 -$46,800 -$63,600 1 -21,600 20,400 2 43,200 20,400 3 43,200 20,400 4 43,200 20,400 5 -28,800 20,400 Under what conditions on the cost of capital should project B be preferred to project A?
Suppose a company has the following three projects and limits it capital budget to $50,000. Projects Present Value of Cash Inflows Initial Investment A $40,000 $25,000 B 37,500 25,000 70,000 50,000 1. Calculate the projects' NPVs. 2. Calculate the projects' PIs. 3. Which project(s) should the company choose? Why?
Capital Budgeting Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 13% to evaluate projects such as these. Time Project A Cash Flows Project B Cash Flows 0 -$46,800 -$63,600 1 -21,600 20,400 2 43,200 20,400 3 43,200 20,400 4 43,200 20,400 5 -28,800 20,400 Assuming a cost of capital of 13%, which of these projects should be accepted?
Capital Budgeting Assume you are evaluating two mutually exclusive projects, the cash flows of which appear below and that your company uses a cost of capital of 13% to evaluate projects such as these. Time Project A Cash Flows Project B Cash Flows 0 -$46,800 -$63,600 1 -21,600 20,400 2 43,200 20,400 3 43,200 20,400 4 43,200 20,400 5 -28,800 20,400 Calculate the payback period and discounted payback period for projects A & B.
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR / CASH FLOW (A) /CASH FLOW (B)0 -$17,000 -$17,0001 8,000 2,0002 7,000 5,0003 5,000 9,0004 3,000 9,500 a. Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case. b. Suppose that the discount rate is 11%. Calculate the Net Present Values (NPV) of both projects. Which project should you accept according to NPV? Evaluate your findings. c. Calculate the Internal Rate of Returns (IRR) for both projects (use excel). Which…
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR / CASH FLOW (A) /CASH FLOW (B)0 -$17,000 -$17,0001 8,000 2,0002 7,000 5,0003 5,000 9,0004 3,000 9,500 a)The crossover point on NPV profile is 12.18%. Above that point which project should you accept? Explain the relevance of the crossover point. How should you convince your boss that the NPV method is the way to go when it is compared with IRR? In other words what are the shortcomings of IRR method? b)Calculate the Profitability Index for each proposal. Which project should you accept? Can this measure help to solve the dilemma?…
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 Calculate the Internal Rate of Returns (IRR) for both projects (use excel). Which project should you accept? Evaluate the IRR values of these two projects.
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 1) Suppose that the discount rate is 11%. Calculate the Net Present Values (NPV) of both projects. Which project should you accept according to NPV? Evaluate your findings.
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 1. Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case. 2. Suppose that the discount rate is 11%. Calculate the Net Present Values (NPV) of both projects. Which project should you accept according to NPV? Evaluate your findings. 3. The crossover point on NPV profile is 12.18%. Above that point which project should you accept? Explain the relevance of the crossover point. How should you convince your boss that the NPV method is the…
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 1) The crossover point on NPV profile is 12.18%. Above that point which project should you accept? Explain the relevance of the crossover point. How should you convince your boss that the NPV method is the way to go when it is compared with IRR? In other words what are the shortcomings of IRR method?
Suppose that you are working as a capital budgeting analyst in a finance department of a firm and you are going to evaluate two mutually exclusive projects by implementing different capital budgeting techniques. The cash flows for these two projects are given below. YEAR CASH FLOW (A) CASH FLOW (B) 0 -$17,000 -$17,000 1 8,000 2,000 2 7,000 5,000 3 5,000 9,000 4 3,000 9,500 1) Calculate the Payback Period of each project. Which project should you accept according to this method? Explain whether the Payback Period is or is not an appropriate method in this case.

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