Foodstuffs Inc. uses a WACC of 8% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this unded to four decimal places): 32 13 77 41 Foodstuffs Inc.'s decision to accept or reject this project is independent of its decisions on other projects. Based on the project's PI, the the project. the NPV of this project is in the project because the project a negative NPV will have a PI that is . On the basis of this evaluation criterion, Purple Whale Foodstuffs Inc. should increase the firm's value. ; when it has a PI of 1.0, it will have an NPV

Foodstuffs Inc. uses a WACC of 8% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this unded to four decimal places): 32 13 77 41 Foodstuffs Inc.'s decision to accept or reject this project is independent of its decisions on other projects. Based on the project's PI, the the project. the NPV of this project is in the project because the project a negative NPV will have a PI that is . On the basis of this evaluation criterion, Purple Whale Foodstuffs Inc. should increase the firm's value. ; when it has a PI of 1.0, it will have an NPV

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Description: Purple Whale Foodstuffs Inc. uses a WACC of 8% when evaluating proposed capital budgeting projects. Based on these cash flows, determine thisproject's PI (rounded to four decimal places):O 0.63320.50130.5277O 0.5541Purple Whale Foodstuffs Inc.'s dec

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2PA

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Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?
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Question: You are a financial analyst for the Hitler Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Y 0 ($10,000) ($10,000) 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 Required: Calculate each project’s payback period, discounted payback period, net present value (NPV), profitability index and internal rate of return (IRR). Which project or projects should be accepted if they are independent? Which project should be accepted if they are mutually exclusive?
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. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $400,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $425,000 Year 3 $425,000 Year 4 $425,000 Green Caterpillar Garden Supplies Inc.’s weighted average cost of capital is 8%, and project Alpha has the same risk as the firm’s average project. Based on the cash flows, what is project Alpha’s net present value (NPV)? $961,358 $1,336,358 $1,105,562 $1,386,358 Making the accept or reject decision Green Caterpillar Garden Supplies Inc.’s decision to accept or reject project Alpha is…
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