Reference no: EM132532958

Question 1: Given the following information, determine the total relevant cost of the capital investment proposal:

New Machinery and Equipment? 14,000,000.00

Modification of Existing Facilities for the new product 4,000,000.00

Market Testing Cost conducted a year ago 2,000,000.00

Additional Working Capital for the new product 2,000,000.00

Question 2: Two firms are considering borrowing. Firm A has excellent prospects in terms of future projects and is in an area in which cash flows are volatile and future needs are difficult to assess. Firm B has more stable cash flows and fewer project opportunities and predicts its future needs with more precision.? Other things remaining equal, which of these two firms should borrow more considering bankruptcy and financial flexibility? Why?

Question 3: The company is considering offering a 4/10, net/30 discount. It anticipates that 30 percent of its customers will take advantage of the discount. The collection period is expected to decrease to 2 months. ?How much is the net advantage/disadvantage of the planned discount policy?? Should the discount policy be implemented?

Stevens Company presents the following information:

Current annual credit sales :      $24,000,000

Collection period? :                     3 months

Terms? :                                    net/30

Rate of return ?:                        18%