Question

Find an article where one of the methods of capital budgeting (net present value, payback period, profitability index, etc ) is used by a company for a project and describe the result of the project. Based on the method used, did the company move forward with the project or dissolve the project?

Answer #1

Delta company is planning to buy a machine , knows as machine Z. Machine Z, would cost $35,000 and would have a useful life of 10 years with zero salvage value. The expected annual cash inflow of the machine is $15,000.

We need to use the payback method to find out weather or not we should purchase this machine. The maximum desired payback period for the machine is 3 years.

So, as the annual cash flows are $15,000,

payback period is = 2 + 5000/15,000

= 2.33 years

RESULT : So, yes the project should be accepted as the payback period is less than the desired payback for this project of 3 years. The company will move forward with the project.

7) A company uses the payback
method to evaluate capital budgeting projects. It is
currently considering projects A, B and C.
Project
A Project
B Project
C
Initial cost (cash
outflow) $10,000 $10,000 $10,000
Cash inflows:
1st
year $ 1,000 $9,000 $ 5,000
2nd year
$9,000 $1,000 $5,000
3rd year $15,000
- 0
- $35,000
a) Find the payback period for
each of the above capital budgeting projects. Label the
payback period for each project so I can see which payback period
goes with which project.
b) What two major weaknesses of
the payback method are illustrated by...

How does the use of payback period, net present value, and
internal rate of return for capital budgeting projects connect
directly with a firm’s strategic goals?
What factors in the political, business, and economic climate
or environment have a direct correlation to capital budgeting
projects? What potential short-term and long-term impact on capital
budgeting projects might these factors have?

1) Capital budgeting is the process of analyzing potential
projects. What does net present value (NPV) represent in capital
budgeting analysis? How does NPV compare to internal rate of return
(IRR); specifically, what makes them similar and different? What
functional flaw exists in the discounted payback period calculation
that makes this capital budgeting tool suspect?

Given the following cash flows, for the two independent
projects A and B, calculate
Payback
Period
Accounting rate of
return
Net Present
Value
Profitability
index
And recommend acceptance or rejection of projects considering
individual techniques of capital budgeting. A rate of 10 % has been
selected for the NPV analysis.
Project A
Project B
Initial outlay
$50,000
$100,000
Cash inflows
Year 1
$10,000
$ 25,000
Year 2
15,000
25,000
Year 3
20,000
25,000
Year 4
25,000
25,000...

Capital Budgeting Analysis :
A firm is planning a new project that is projected to yield cash
flows of - $595,000 in Year 1, $586,000 per year in Years 2 through
5, and $578,000 in Years 6 through 11. This investment will cost
the company $2,580,000 today (initial outlay). We assume that the
firm's cost of capital is 11%.
(1) Draw a timeline to show the cash
flows of the project.
(2) Compute the project’s payback
period, net present value...

9
the following are true/false
4)When the IRR serves as the discount rate, the net present
value =$0
14) The first step when solving for the modified IRR (MIRR) is
to calculate the present value of the cash inflows.
16) It is not fair to say that all capital budgeting methods
have an accept-reject criterion.
17) a project costing $1000 and returning $450 annually for
three will have a npv> $0 if the discount rate is =15%
18) If the...

Given the following data, calculate the net present value for
this capital budgeting project: Annual operating cash flow =
$198,500 Fixed asset investment = $649,000 Working capital
investment = $38,000 Project life=4 years; Depreciation method=SLD
to zero Market salvage value=$187,000; Cost of capital=14%; Tax
rate=35%

4. Capital Budgeting: This question has five parts. Here you
have to find Net Present Value (NPV) for the two projects.
(Show all work.) (15 points)
Expected Net Cash Flows
Year
Project A
Project B
0
($5,000)
($5,000)
1
$700
$750
2
$1,000
$1,250
3
$3,250
$3,000
4
$3,500
$3,250
______ 4a. If the opportunity cost of capital is 10%, what is
the NPV of Project A (round to the nearest penny)?
______ 4b. If the opportunity cost of capital...

11.
The discount rate that makes the net present value of an
investment exactly equal to zero is the:
A)
Payback period.
B)
Internal rate of return.
C)
Average accounting return.
D)
Profitability index.
E)
Discounted payback period.
12.
The internal rate of return (IRR) rule can be best stated
as:
A)
An investment is acceptable if its IRR is exactly equal to its
net present value (NPV).
B)
An investment is acceptable if its IRR is exactly equal to...

Tom just got out of a meeting with felicity in which they
discussed a capital budgeting project they are evaluating for the
company. Tom's mind was not focused on the meeting, so all he can
remember is that Felicity used one of the time value of money
techniques mentioned in the book to evaluate the project and that
she concluded the project should be purchase. based on this
information, which of the following statements must be correct?
A. The projected...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 7 minutes ago

asked 37 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago

asked 4 hours ago