4. What factors should be considered when estimating a new business'NINV? Is it any different for an asset replacement project.5. Why is depreciation, a noncash expense, considered when estimatinga project's netcash flows?6. What are the potential tax consequences of selling an old asset in anasset replacement investment decision?

Note: Since you have asked multiple questions, we will solve the first question for you. If you want…

Answered: 4. What factors should be considered…

4. What factors should be considered when estimating a new business' NINV? Is it any different for an asset replacement project.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 9QTD

See similar textbooks

Related questions

Q: Required a. Compute the net present value of each opportunity. Which should Mr. Keams adopt based on…

A: NPV :— NPV is the Difference between PV of cash inflow and Cash outflow of the capital project. If…

Q: What are three types of project risk? How caneach type of risk be considered when thinkingabout the…

A: The following are the main three risks associated with the project: Project’s stand-alone risk,…

Q: As a Businessman and Entrepreneur, which do you think is more important between Return On Asset…

A: ROA is the return on assets and ROI is the return on investment.

Q: Which of the following cash flows should not be considered when evaluating a project? Changes in…

A: Following cashflows should not be considered when evaluating a project-

Q: Do you think a company like Target would have significant research anddevelopment costs or…

Q: Which investment project(s) should the business undertake assuming each project is: (a) divisible…

A: Capital rationing is a situation where a company cannot invest in all profitable projects, even…

Q: Which projects should the manager choose? If you were given unlimited capital, which projects should…

A: Net Present Value is the difference between present value of cash inflows and present value of cash…

Q: How can we reduce investment risks by asset diversification?

A: Answer: Diversification is nothing but the strategy that reduces the risk by allocating assets to…

Q: How can the calculation of Net Income Attributable be done to a new project?

A: The question is based on the concept of Net Income Attributable for new projects.

Q: How is the asset based valuation important in the business?

A: In case of mergers and acquisitions:: In the event that two companies are merging, or if a company…

Q: opportunity cost? Depreciation Given the choice, would a firm prefer to use MACRS depreciation or…

A: Depriciation:- Depreciation is an accounting method that is used to divide or allocate Cost of a…

Q: What alternatives do companies have for evaluating alternative projects or investments?

A: Capital Budgeting Techniques helps to decide the investment project that should be selected.

Q: what does it mean if the NPV and IRR are both positive, should the company invest on the project or…

A: Net Present value refers to the present value of future cash flow, which means cash flows generated…

Q: How can a developer create value over and above their project cost when attempting to obtain…

A: Financing refers to a process of raising funds for business activities, and making purchases or…

Q: Which of the following is NOT relevant to the evaluation of a proposed project? Incremental cash…

A: While eveluating a project all the initial cash flows and subsequent cash flows are considered. All…

Q: If technology is changing rapidly, a firm should (a). expense plant assets immediately because of…

A: This question is providing about the rapid technology change and impact of this technology change on…

Q: What is the most preferred method of an investment center manager among investment turnover,…

A: An investment center is the unit of a corporation that is assessed on the basis of the utilization…

Q: 34. Which of the following is not one of the basic questions that must be answered before the amount…

A: The correct option is (B). The products or services being rendered by the asset has no relations…

Q: risks that an organisation can be exposed to when undertaking a new investment

A: Introduction: A company would enter into various types of investments and these investments would…

Q: Which of the following is the correct calculation of project Sigma's IRR? 46.74% O 40.64% O 36.58%…

A: 1. cash out flow at t0 = $ 800000 and calculate IRR. year cash flow PVF@40.64% Present Value ($) 1 $…

Q: Do the fixed assets lose their value even though they continue to function and contribute to the…

A: Meaning of Fixed Assets Fixed assets are those assets which are used in the business with the…

Q: How a successful engineering project affects a firm's market value?

A: Concept Market Value is value of a company in terms of its share value in the current market .It is…

Q: Determine the cost of equity to finance the plant modernization.?

A: The cost of equity is the revenue a firm needs to determine if a venture satisfies the conditions of…

Q: Does the Diversification require regular evaluating the assetsand realigning the investment mix?…

A: As an investor, the main objective of investment is to maximize return on investment. An investment…

Q: Which of the following is an advantage of Net present value? a. Investment potential ignored b.…

A: Net present value (NPV): The net present value is a technique used for making the investment…

Q: Calculate internal Rate of Return of the project. Should the project be accepted? If reinvestment…

A: Internal rate of return is the rate at which the present value of cash inflows are equal to present…

Q: Financially, what is the economic worth of outbidding thecompetitors for a project?

A: Companies often exploit opportunities in the market because they will create positive NPV for the…

Q: Which of the following is not considered a capital investment? 18 Multiple Cholce Ask The…

A: As per Bartleby answering guidelines answered only the first question. Kindly post the other…

Q: What are the main constraints or obstacles to implementing the investment management concept?

A: Investment management refers to the management of assets of an individual by the firm. It will…

Q: How important are assumptions in preparing a business project feasibility? Justify your answer. What…

A: A development plan, sometimes referred as a feasible analysis or sustainability report, is a method…

Q: 2.Which of the following are sunk costs for deciding whether to accept or reject a project?…

A: Sunk Cost: These are unrecoverable costs , that has already been incurred and is not affected by…

Q: What is a true indicator of the project's profitability?

A: Answer: Capital budgeting is the whole project investment process and the decision of whether it…

Q: Do you think that there is any new assets or new investment vehicles that you think that would…

A: Nowadays electric vehicles are becoming more and more popular because of their usage and convince.

Q: Which one of the following is an essential characteristic of an asset? A. The inflow of future…

Q: ) How could rates of technological change affect a company’s decision about whether to buy or lease…

A: Rate of technology plays a crucial role in the decisions made by companies. If the technology is…

Q: A firm is about to double its assets to serve it’s rapidly growing market. It must choose between a…

A: Should the asset investment and financing decisions be jointly determined, or should each decision…

Q: How do you overcome the challenges posed by unequal lives of the projects being comparedand when…

A: Capital Budgeting is the evaluating techniques which evaluates the profitability of the long term…

Q: . Which machine should be selected using the Payback period method? 2. Which machine should be…

A: Given: Machine A Particulars Amount 0 Initial investment -750,000.00 1 Cash flows…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

4. What factors should be considered when estimating a new business'
NINV? Is it any different for an asset replacement project.
5. Why is depreciation, a noncash expense, considered when estimating
a project's net
cash flows?
6. What are the potential tax consequences of selling an old asset in an
asset replacement investment decision?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Question: (a) What is a Capital Recovery Amount Factor (b) Write a detailed note on Minimum Attractive Rate of Return. (c) "Land" is not considered as a depreciable property. WHY? (d) Differentiate between income tax and sales tax. Explain both of these types with the help of examples. ww aN
Question:- What would decrease the internal rate of return of a proposed asset purchase?
1. A company is deciding whether to exchange an old asset for a new asset. Within the context of the exchange decision, and ignoring income tax considerations, the undepreciated book value of the old asset would be considered a(an) Sunk cost Irelevant cost No No Yes No No Yes d. Yes Yes 2. Expected future costs that will differ among alternatives a. Opportunity cost. b. Relevant costs. c. Sunk cost. d. Out-of-pocket costs.
A company can either purchase or lease an asset. When comparing the two alternatives, which of the following is not an advantage of buying and financing the asset? (a) the possibility of receiving an investment tax credit (b) Obtaining a tax deduction for the depreciation expense (c) The potential of the asset to appreciate in value (d) Improved financial leverage
Answer the following questions in depth .... Why do accountants have to classify items as capital or revenue expenditures? Why do you treat exchanges of similar and dissimilar assets differently? Aren't they all exchanges? Is it true that the higher the depreciation, the lower the net income? If that is the case, why would we not want the lowest depreciation method so we can show the highest net income? Why do we have various methods of depreciation? Isn't that encouraging misleading results?
From the following identify the cost that is not a cost of PPE? Professional fees Nonrefundable taxes Testing the functionality of asset Value added tax Jumn to
A company is most likely to:A. use a fair value model for some investment property and a cost model for other investment property.B. change from the fair value model when transactions on comparable properties becomeless frequent.C. change from the fair value model when the company transfers investment property toproperty, plant, and equipment.
If a company wanted to take advantage of depreciation expenses, how would this company accomplish this? What would be the advantages? Are there any disadvantages?
1. It is a depreciation method based on the assumption that the value of a property is directly proportional to its age. a. Straight Line Method b. Sinking Fund Method c. Declining Balance Method d. Service Output Method 2. Which of the following is NOT a requirement of a depreciation method? a. It should be simple b. It should recover the capital c. BIR approved d. The book value should be higher than the market value 3. The decrease in the purchasing power of money a. Devaluation b. Depreciation c. Inflation d. Depletion
a. For reporting purposes, management prefers higher profit; for tax purposes, lower taxable income is desired. To meet these goals, firms often use different methods of depreciation for tax and reporting purposes. Which depreciation method is best for reporting and which for tax purposes in the short run? Why?
Which of the following is an advantage of Net present value? a. Investment potential ignored b. Useful in evaluating mutually exclusive projects c. Considers time value of money d. Easy to calculate
Which of the following statements is/are FALSE: I. Following the acquisition of an item of property, plant and equipment, subsequent expenditure for this item that will extend the asset’s useful life and increase the asset’s capacity is capitalised. II. Investment property does not get depreciated, unless it is measured at cost. III. In the statement of comprehensive income, costs can be analysed according to function or nature. Costs analysed according to function are classified into the following categories: distribution & selling costs; administrative expenses; other operating expenses (or income). IV. Because of the prudence convention, inventories are expensed in the income statement as cost of goods sold when they are sold, and not when they are bought in by the business and paid for. V. A complete set of financial statements consists of the statement of financial position, the statement of comprehensive income, the statement of changes in equity and the statement of…