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1) The cost of a project is $500,000 and the present value of the net cash inflows is $625,000. What is the increase in value of the firm as a result of accepting the project.
2) A project has an initial outlay of $100,000 initially then a cash inflow of $133,000 at third year (year 1 and year 2 has no cash inflow). At a discount rate of 10% what is the NPV?
3) You are choosing between mutually exclusive projects A and B. Project A has a NPV of $10,000 and an IRR of 15%. Project B has a NPV of $6,500 and an IRR of 23%. Which project should be selected?
4) When projecting cash flows into the future and calculating net present values(NPV), the manager should NOT adjust the cash flows for inflation. What do you think and why?
5) Is there ever a valid reason for ignoring the results of financial capital budgeting analysis? Explain.
The real risk-free rate is 2.1%. Inflation is expected to be 2.3% this year, 4.35% next year, and 2.35% thereafter. What is the yield on a 7-year Treasury note?
Considering a new three-year expansion project that requires an initial fixed asset investment of $2,670,000. What is the net cash flow of the project each year
Assume that each of the following changes is independent (i.e., except for this change, all other factors remain unchanged). In each case, indicate what will happen to the earnings multiplier and explain why.
Otto Electronics issues a $834,700, 14%, 10-year mortgage note on December 31, 2013. The proceeds from the note are to be used in financing a new research laboratory. Prepare the entries for (1) the loan and (2) the first two installment payments.
Outdoor Sports is considering adding a miniature golf course to its facility. The course would cost $138,000, would be depreciated on a straight-line basis over its five-year life, and would have a zero salvage value. The estimated income from the go..
When computing a present value, which of the following is TRUE?
Assume cash flows are conventional.
Consider an asset that costs $600,000 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $170,000. If the relevant tax rate is 35..
Staples Inc.’s stock has a 50% chance of producing a 25% return in a booming economy, a 25% chance of producing a 10% return if the economy is average, and a -28% return if it enters a recession. What is Staple’s expected rate of return?
Calculate the amt of dep for 2016 including bonus depreciation and the election to expenses that Mike can deduct.
What are sunk costs? Provide examples and how are they handled in making decisions. One of the economic concepts we deal with is opportunity cost. Discuss opportunity costs and provide examples.
In the current year, Dentist purchased two limited partnership interests. What is the amount of Dentist’s passive activity credit for the current year?
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