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1. What is opportunity cost and why is it an important concept in the capital budgeting process? The opportunity cost concept applies to almost every financial decision we make as individuals. Can you give an example from your own experience?
2. What is capital rationing from the perspective of capital budgeting?
3. Give an example of a strength and a weakness of the accounting rate of return approach.
What is your initial margin requirement? Suppose you buy the stock at the purchase price and repay your broker. What is your return on this short? How high can Toyota go before you receive a margin call? What is the reduction needed to return your ac..
Mr. Bill. S. Preston, Esq., purchased a new house for $100,000. He paid $15,000 upfront and agreed to pay the rest over the next 10 years in 10 equal annual payments that include principal payments plus 13 percent compound interest on the unpaid bala..
Calculate the payback period for the proposed investment.- Calculate the NPV for the proposed investment.- Calculate the IRR for the proposed investment.
Mullineaux Corporation has a target capital structure of 70 percent common stock, 15 percent preferred stock, and 15 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 5 percent. W..
Calculate Watervan’s economic value added (EVA). What is the company’s return on capital?
Assume that the spot exchange rate of the British pound is $1.6500. How will this spot rate adjust over the next year according to PPP if the United Kingdom experiences an inflation rate of 7.2 percent while the United States experiences an inflation..
You have employer -sponsored retirement plan. Assume, your age 35 and you plan to retire at 65. You can contribute $3600 per year to this plan. your employer will match this amount. If you can earn an 8% return on this investment. How much will you h..
Eureka enterprises had an all equity cost of capital of 12 percent. When the firm switched to being levered its cost of equity increased to 13.4 percent and its pretax cost of debt was 7.5 percent. What was the firm's debt-equity ratio after the swit..
You expect to earn 13% annually on the account. How many years will it take to reach your goal?
Jean's Warehouse has 16,000 shares of stock outstanding. The current market value of the firm is $768,000. The company has retained earnings of $130,000, paid in surplus of $321,000, and a common stock account value of 16,000. The company is planning..
Calculate Ulwind’s MCC (marginal cost of capital) assuming that (1) it wants to maintain its current capital structure and (2) it will have to issue new shares of both preferred and common stock
Price Corp. is considering selling to a group of new customers and creating new annual sales of $90,000. 5% will be uncollectible. The collection cost on these accounts is 3% of new sales, the cost of producing and selling is 80% of sales and the fir..
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