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a) Why is the capital budgeting decision crucial and important for a firm? State why the capital budgeting errors are so costly?
b) Suntex Berhad is considering a major expansion of its production line and has estimated the following free cash flows associated with such an expansion. The initial outlay associated with the expansion would be $ 1,950,000 and the project would generate free cash flow of $ 450,000 per year for six years. The appropriate required rate of return is 9%. Answer the followings:
i) Calculate the net present value
ii) Calculate the profitability index
iii) Calculate the internal rate of return
iv) Should this project be accepted?
A five-year project has an initial fixed asset investment of $275,000, an initial NWC investment of $23,000, and an annual OCF of −$22,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..
What is the total present value of the following series of cash flows, discounted at 10 percent?
What mutual fund would you recommend for a 65 year old retired school teacher who is extremely conservative in her investing? She doesn’t want to lose one dollar. She has retirement money to live on but she is concerned about inflation and taxes. Wha..
Becky Fenton has 25/50/10 automobile insurance coverage. If two other people are awarded $45,000 each for injuries in an auto accident in which Becky was judged at fault, how much of this judgment would the insurance cover?
Three years from now, Barb will purchase a laptop that will cost 2,250. Assume that Barb can earn 6.25% (compounded monthly) on her money. How much should she set aside today for the purchase? Round off to the nearest $10.
Smith buys a 182-day US T-Bill at a price which corresponds to a quoted annual rate of 182-day T-Bills of 10%. 91 days later smith sells the T-Bill at which time the prevailing quoted annual discount rate of 91-day T-Bills is also 10%. Find th..
You constructed a pro forma balance sheet for next year and found that external financing required was negative (i.e., the company projected a financing surplus). Which of the following options, all else equal, would NOT correct the projected imbalan..
Recalculate the NPV assuming the machine press can only be sold for $45,000 at the end of year four. Does this change have an impact on their decision?
Fantastic Floors Inc. just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 15 years and a yield to maturity of 7.45%, compounded semi-annually. What is the current price of the bond? Round the answer to two decimal pla..
Assume that on a particular day, the DJIA opened at 11,960.09. The divisor at that time was .132550914. What would the new index level be if all stocks on the DJIA increased by $1.00 per share on the next day?
Broussard Skateboard's sales are expected to increase by 15% from $8.6 million in 2013 to $9.89 million in 2014. Its assets totalled $6 million at the end of 2013. Broussard is already at full capacity, so its assets must grow at the same rate as pro..
Pat sells real estate for $30,000 cash and $120,000 5-year note. If her basis in the property is $90,000 and she receives only the $30,000 down payment in the year of the sale, how much is Pat's taxable gain in the year of sale using the instalment s..
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