Which one of the following activities best exemplify capital structure decisions. For this exercise you will be choosing more than one option for your answer: Determine the most adequate mixture of debt and equity to be maintained.Obtain a short-term loan to purchase materials.Identify two capital investment projects.Determine the cost of each source of capital.Determine the return of a potential project.Calculate the cash flows for a project.Assess the terms of loans and evaluate potential long-term financing options.

Which one of the following activities best exemplify capital structure decisions. For this exercise you will be choosing more than one option for your answer: Determine the most adequate mixture of debt and equity to be maintained.Obtain a short-term loan to purchase materials.Identify two capital investment projects.Determine the cost of each source of capital.Determine the return of a potential project.Calculate the cash flows for a project.Assess the terms of loans and evaluate potential long-term financing options.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 17MCQ

See similar textbooks

Similar questions

Explain how a net present value (NPV) profile is used to compare capital projects. How does this profile compare to that of internal rate of return (IRR)? How does reinvestment affect both NPV and IRR? Support your rationale with at least one citation from the literature.
What is the MOST important variable of the financial planning process? Select one: a. The costs b. The capacity of the fixed asset c. The pro forma income statement d. The sales forecast
As a financial manager and evaluating capital investments, one of the most difficult portions of the analysis is to predict the future cash flows. Please pick a capital investment of your choice and describe how you would develop the Free Cash Flows. Pay particular attention to describing if working capital should be included and incremental revenue/income.
Suggest your interested project idea and analyze the types of financial resources that you will use to finance this idea with clarifying why you do select this capital structure to finance your investment idea.
a) Explain the Net Present Value relating to investment of funds in long term investments. b) Based on your answer in (a) above, should the project be accepted? Explain your decision.
Working capital management includes which one of the following? OA. Deciding which new projects to accept B. Deciding whether to purchase a new machine or fix a currently owned machine OC. Determining which customers will be granted credit OD. Determining how many new shares of stock should be issued OE. Establishing the target debt-equity ratio
QUESTION 1 The accounts manager of VM Gym & Sports has been asked to evaluate a potential capital investment of a set of rowing machines. The following data is available for cach project: Machine 1 Machine 2 RM RM Cost (immediate outlay) 500,000 245,000 Expected annual profits (losses) Year 1 I. 80,000 84,000 Year 2 90,000 136,000 Year 3 116,000 126,000 Year 4 146,000 150,000 Annual running costs 30,000 24,000 Annual service costs 36,000 20,000 Estimated residual value equipment 40,000 30,000 *The total annial running and service costs for Machine 2 in the first year is RM 36,000 The committee has estimated a cost of capital of 30% and employs the straight-line method of depreciation for all fixed assets when calculating net profit. The following discount factors are given: Year Cost of capital 10% 50% 0.909 0.667 2. 0.826 0.444 3. 0.751 0.296 4. 0.683 0.198
We learn there are three primary methods used to analyze capital investment proposals. Please compare and contrast these three methods. Be sure to include strengths (benefits) and weaknesses (drawbacks) of each. Three primary methods are: Payback method Internal rate of return Net present value.
Explain how a net present value (NPV) profile is used to compare capital projects. How does this profile compare to that of internal rate of return (IRR)? How does reinvestment affect both NPV and IRR?
Payback period, accounting rate of return, net present value, and internal rate of return are common methods to evaluate capital investment opportunities. Assume that your manager asks you to identify the measurement basis and unit that each method offers and to list the advantages and disadvantagesof each method. Present your response in memorandum format of less than one page.
B) Draw the firms marginal cost of capital (MCC) and the Investment Opportunity Schedule (IOS) C) Which of the projects should they select? why? D) Calculate the overall cost of capital for TSL
Several proposed capital projects which are economically acceptable may have to be ranked due to constraints in financial resources. In ranking these projects, the least pertinent is this statement. A. A ranking procedure on the basis of quantitative criteria may be established by specifying a minimum desired rate of return, which rate is used in calculating the net present value of each project. B. In selecting the required rate of return, one may either calculate the organization’s cost of capital or use a rate generally acceptable in the industry. C. If the internal rate of return method is used in the capital rationing problem, the higher the rate, the better the project. D. If the net present value method is used, the profitability index is calculated to rank the projects. The lower the index, the better the project.