"Management Decision Analysis" 1. Discounted cash flow and budget cut analysis for a long lasting institute. A famous university was planning to prepare a ten-year continuous expenditure as a necessary investment for the renovation of the faculty buildings, i.e., 800 million Yuan per year in the next ten years are required for an extra expenditure beside all other needs of operations of the university. The project committee were considering a budget cut from the "current" annual budget of 7 billion per year. What could be an adequate rate of budget cut that you should want to suggest? Discuss about the influence of the interest rate used in the computation. Requirement: Write a VBA function "AnnuityFactor" to compute annuity factor to be used in the analysis, for skill enhancement

"Management Decision Analysis" 1. Discounted cash flow and budget cut analysis for a long lasting institute. A famous university was planning to prepare a ten-year continuous expenditure as a necessary investment for the renovation of the faculty buildings, i.e., 800 million Yuan per year in the next ten years are required for an extra expenditure beside all other needs of operations of the university. The project committee were considering a budget cut from the "current" annual budget of 7 billion per year. What could be an adequate rate of budget cut that you should want to suggest? Discuss about the influence of the interest rate used in the computation. Requirement: Write a VBA function "AnnuityFactor" to compute annuity factor to be used in the analysis, for skill enhancement

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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.
Project Cash Flow The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: $18 million $7 million $4 million $4 million 1)? Enter your answer in dollars. For example, a Projected sales Operating costs (not including depreciation) Depreciation Interest expense The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = answer of $1.2 million should be entered as $1,200,000. Round your answer to the nearest dollar. LA
Cash flows estimation and capital budgeting:You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,800.00, and it would cost another $2,760.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $2,350.00. The machine would require an increase in net working capital (inventory) of $800.00. The new machine would not change revenues, but it is expected to save the firm $23,845.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 35.00%.If the project's cost of capital is 13.15%, what is the NPV of the project?Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72. Group of answer choices $27,523.47 $17,608.85 $13,560.00…
A project will result in a $25,000 decrease in accounts receivable and require an increase in inventory levels by $10,000 to $95,000. What is the net cash flow for capital budgeting purposes? Group of answer choices -$25,000 -$70,000 -$10,000 $15,000
An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget. Details of those proposals are as follows. Capital Budget Proposals Capital required Annual operating return $ 96,000 $ 60,000 20,400 $ 180,000 16,200 24,960 Shellforth uses residual income to evaluate all capital budgeting projects. Its minimum required return is 10 percent. a-1. Assume you are the investment center manager. Calculate the residual income for each project? a-2. Which project do you prefer? b-1. Assume your investment center's current ROI is 18 percent and that the president of Shellforth is thinking about using ROI for the investment center's evaluation. Calculate the ROI for each project? b-2. Would your preferences for the projects listed change? Complete this question by entering your answers in the tabs below. Reg A1 Req A2 Req B1 Req B2 Assume you are the investment center manager. Calculate the residual income for each project? Project A Project B Project…
Problem #5: Capital Budgets Lockwood Company would like to purchase a production machine for $900,000. The machine is expected to have a life of five years, and a salvage value of $100,000. Annual maintenance costs will total $40,000. Annual savings are predicted to be $350,000. The company only accepts projects that have a payback period of less than three years. Required: (1) Calculate the payback period for this project rounded to the nearest month. Show your work. (2) Should the company accept this proposal? Explain.
Cash flows estimation and capital budgeting:You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,000.00, and it would cost another $2,140.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $1,750.00. The machine would require an increase in net working capital (inventory) of $810.00. The new machine would not change revenues, but it is expected to save the firm $33,605.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 34.00%. If the project's cost of capital is 15.90%, what is the NPV of the project? Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.
Capital Budgeting Case You are a senior financial analyst at PALTEL and you are requested to analyse the following project, where all of the dollar figures are in thousands of dollars. In year 0, the project requires an $11,350 investment in plant and equipment which is depreciated using the straight-line method over seven years and has a salvage value of $1,400 in year 7. The project is forecast to generate sales of 2,000 units in year 1, rising to 7,400 units in year 5, declining to 1,800 units in year 7. The inflation rate is forecast to be 2.0% in year 1, rising to 4.0% in year 5, and then levelling off. The real cost of capital is forecasted to be 11.0% in year 1, rising to 12.2% in year 7. The tax rate is constant at 35%. Sales revenue per unit is forecasted to be $9.70 in year 1 and then grow with inflation. The variable unit cost for Direct Labour, Materials, Selling Expenses, and overhead are forecasted to be $3.50, $2.00, $1.20, and $0.70, respectively, in year 1 and then…
An engineering firm is considering THREE investment plans. The capital budget will only allow to accept ONE of the three alternatives. Financial data for the three plans are given in Table 4. The bank interest is 8%, compounded annually. (a) Compare the THREE plans based on present worth method of comparison. (b) Propose the best plan from the calculated present worth values.
Problems. Problem 1. A division in a large company has been allocated $160 million for capital projects this year. Managers have proposed five projects for the budgeting committee to consider. The committee would like to maximize the total NPV. What projects should be selected? • There is one project of each type, each project has an estimated NPV (net present value, a measurement of profit) and each requires a capital expenditure (this comes out of the budget above). • At least 2 projects must be done. • If Project 5 is chosen, Project 1 must be done as well. Project 1 Project 2 Project 3 Project 4 Project 5 NPV (in millions of $) 10 17 16 8 14 Expenditure (millions of $) 48 96 80 32 64 a. What are your decision variables (x)? State the units for each. b. Write down your objective function (include min/max with the equation) and constraints below, include descriptions/explanations/calculations on the right. Delete/add rows as needed. (objective function above, constraints below)
, a worldwide health care company, looks to invest $50 million in new technologies for diagnostic instrument systems. This investment into research and development would appear in which of Abbot's budgets? a) cash budget b) capital budget c) operating budget d) zero-balance budget Saved
1. An investment of $200,000 is expected to generate the following cash inflows in six years: (15) Year 1: $70,000 Year 2: $60,000 Year 3: $55,000 Year 4: $15,000 Year 5: $30,000 Year 6: $25,000 Required: Compute payback period of the investment. Should the investment be made if management wants to recover the initial investment in 3 years or less?

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