Reference no: EM132029997
Capital Budgeting Case -
This case is about the purchase of long-term operational assets which called capital investments. Investment in capital assets normally can be covered only by using those assets. Once a company purchases a capital asset, it is committed to that investment for an extended period of time. Business profitability ultimately hinges, to a large extent, on the quality of a few key capital investment decisions. A capital investment decision is essentially a decision to exchange current cash outflows for the expectation of receiving future cash inflows. Managers can choose from numerous analytical techniques to help them make capital investment decisions. Each technique has advantages and disadvantages. This case deals with the concept of time value of many, and using the net present value technique.
Steps:
1- Determine the initial investment (cost of the new project, initial cash outflows...etc)
2- Determine the annual net cash inflows
3- Calculate the present value of each cash flow, using appropriate discount rate
4- Calculate the net present value
5- Make the decision
The manager of Abu Dhabi Inc. is thinking of combining a new robot system with the current automated system. The following data related to the new system:
1- The cost of purchasing and installing the new system amount of $10,000,000
2- The system requires keeping a working capital (inventories of spare parts) $500,000
3- The cost of the system will be obtained through a 6-year 5% loan from Abu Dhabi National Bank. The loan and its interest will be paid in 6 annual installments.
4- The useful life of the new system is 20 years and will be sold then for $300,000
5- The annual sales from operating the new system is expected to be 10,000 units in the first 10 years and by 35,000 units in the last 10 years. The selling price is constant at $300 per unit.
6- Cost of goods sold is constant at $200 per unit
7- Annual operating expenses related to the new system:
Selling expenses $400,000
Administrative expenses $150,000
Depreciation expenses $485,000
Other expenses $ 50,000
If required rate of return is 12% and NPV model is used, should this project be accepted? Why?
Identify and describe generally the law applicable
: The only traffic is a Navy helicopter transiting the area westbound en route to a nearby Navy facility and a northbound private civilian seaplane.
|
What is the given stock worth today
: Over the past 15 years, Maverick has increased their annual dividend from $0.10 to $0.75. If the required rate of return on the stock is 17%.
|
What was the return for the year
: A particular stock has a dividend yield of 1.2 percent. Last year, the stock price fell from $65 to $59. What was the return for the year?
|
How much are your monthly student loan payments
: To pay for your education, you have taken out $28,000 in student loans. If you make monthly payments over 13 years at 5% compounded monthly.
|
Determine the initial investment
: Capital Budgeting Case - Determine the initial investment (cost of the new project, initial cash outflows...etc) Determine the annual net cash inflows
|
What is the information ratio for the fund over the period
: Over the past 6 months, you observe the following monthly returns for an actively managed small cap mutual fund and for the benchmark small cap index.
|
Calculate cost of common equity financing using capm
: Paul Sharp is CFO of Fast Rocket Inc. He tries to determine the cost of equity financing for his company. The stock has a beta of 2.41.
|
What is the average monthly return
: The past five monthly returns for Kohls are 3.74 percent, 4.12 percent, -1.88 percent, 9.35 percent, and -2.76 percent. What is the average monthly return?
|
What is the firm times interest earned
: In the past year, a firm had revenues of $3,000,000, cost of goods sold of $2, 500,000, and depreciation expense of $200,000. The firm has a single issue.
|