Question

You are evaluating a project for your company. The initial outlay for the project is $5,000,000,...

You are evaluating a project for your company. The initial outlay for the project is $5,000,000, and free cash flows for the project are $1,000,000, $3,000,000, $3,000,000, $4,000,000 and $4,000,000.  For risk analysis, you utilize the Payback and Discounted Payback methods to trigger increased risk scrutiny.  Your standard is, any project that goes longer than 3 years under either metric will go through these increased risk tests.  If your required rate is 12%, does this project qualify for increased scrutiny? Any problems with this approach?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Question-4 You are evaluating a project for your company. The cost of the capital of your...
Question-4 You are evaluating a project for your company. The cost of the capital of your company is 15 percent. The initial cost of the project is $5,000,000. The project is expected to provide after-tax operating cash inflows of $1,800,000 in the first year, $1,900,000 in the second year, $1,700,000 in the third year, and $1,300,000 in the fourth year. Would you recommend this project for your company? YOU MUST SHOW AND JUSTIFY YOUR WORK. YOU MUST ALSO SHOW CALCULATOR...
Required: Suppose you paid your old college finance professor to evaluate a project for you. If...
Required: Suppose you paid your old college finance professor to evaluate a project for you. If you would pay him regardless of your decision concerning whether to proceed with the project, should his fee for evaluating the project be included in the project's incremental cash flows? Required: Under what circumstances could payback and discounted payback be equal? And what are the drawbacks of these two methods? Required: How are normal and non-normal cash flows different? Required: Which capital budgeting method...
Your company is considering a project, with an initial outlay of $60M and 8 years of...
Your company is considering a project, with an initial outlay of $60M and 8 years of cash flows of $15M starting in year 1. The project is scale expanding, meaning it has the same level of risk as your firm.   On average, your firm’s stock return increases 12% when the market return increases 10%. T-bills yield 4% and the market portfolio offers an expected return of 13%. Your firm finances 35% of its assets with debt that yield of 9%....
show work on how to get the answer Your company is evaluating a capital project with...
show work on how to get the answer Your company is evaluating a capital project with equipment costing $120,600. Shipping costs are estimated at $2000 and installation is expected to be $1300. This equipment has an expected life of 18 years and a salvage value of $1400. Revenues are expected to increase by $15,000 per year and cash operating expenses by $500 per year. An additional working capital investment of $900 is also required, and the firm’s marginal tax rate...
You are the project manager for a new multimillion-dollar building renovation for your organization. The company...
You are the project manager for a new multimillion-dollar building renovation for your organization. The company needs to maximize the space that it has, and the best approach is to do a staggered build-out in order to better maximize the space in the existing building. You feel that the best approach was to negotiate with multiple contractors on a fixed-price contract. Different contractors discussed other contracts with you, particularly ones to address the current market fluctuations in the raw materials...
show your detailed work and how you arrived to the solution. Comprehensive Problems Consider the following...
show your detailed work and how you arrived to the solution. Comprehensive Problems Consider the following information on Liquor Co. Debt: 4,000, 7% semiannual coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 102 percent of par; the bonds make semiannual payments. Preferred Stock: 10,000 outstanding with par value of $100 and a market value of 105 and $10 annual dividend. Common Stock: 84,000 shares outstanding, selling for $56 per share, the beta is 2.08 The market...
CAPITAL BUDGETING PROJECT NEWMAN ENTERPRISES, Inc. is a multinational conglomerate corporation providing a wide range of...
CAPITAL BUDGETING PROJECT NEWMAN ENTERPRISES, Inc. is a multinational conglomerate corporation providing a wide range of goods and services to its customers. As part of its budgeting process for the next year, it has three mutually exclusive projects under consideration, and it might decide which project should receive the investment funds for this year. As part of the financial analysis team, it is up to you to determine the appropriate valuation of each project. However, before you can determine the...
The Business Case for Agility “The battle is not always to the strongest, nor the race...
The Business Case for Agility “The battle is not always to the strongest, nor the race to the swiftest, but that’s the way to bet ’em!”  —C. Morgan Cofer In This Chapter This chapter discusses the business case for Agility, presenting six benefits for teams and the enterprise. It also describes a financial model that shows why incremental development works. Takeaways Agility is not just about the team. There are product-management, project-management, and technical issues beyond the team’s control. Lean-Agile provides...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From the April 2004 Issue Save Share 8.95 In 1991, Progressive Insurance, an automobile insurer based in Mayfield Village, Ohio, had approximately $1.3 billion in sales. By 2002, that figure had grown to $9.5 billion. What fashionable strategies did Progressive employ to achieve sevenfold growth in just over a decade? Was it positioned in a high-growth industry? Hardly. Auto insurance is a mature, 100-year-old industry...
Please read the article and answear about questions. Determining the Value of the Business After you...
Please read the article and answear about questions. Determining the Value of the Business After you have completed a thorough and exacting investigation, you need to analyze all the infor- mation you have gathered. This is the time to consult with your business, financial, and legal advis- ers to arrive at an estimate of the value of the business. Outside advisers are impartial and are more likely to see the bad things about the business than are you. You should...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT