Describe risk methodologies used in capital budgeting

Assignment Help Risk Management
Reference no: EM131211610

Presentation Help

Apix is considering coffee packaging as an additional diversification to its product line. Here's information regarding the coffee packaging project:

• Initial investment outlay of $40 million, consisting of $35 million for equipment and $5 million for net working capital (NWC) (plastic substrate and ink inventory); NWC recoverable in terminal year
• Project and equipment life: 5 years
• Sales: $27 million per year for five years
• Assume gross margin of 50% (exclusive of depreciation)
• Depreciation: Straight-line for tax purposes
• Selling, general, and administrative expenses: 10% of sales
• Tax rate: 35%

Assume a WACC of 10%.

Should the coffee packaging project be accepted? Why or why not? Compute the project's IRR and NPV.

In addition, answer the following questions:

• Do you believe that there was sufficient financial information to make a solid decision on what to do?
• Was there further financial information that you required that was not provided to you?
• What financial figure do you believe was the determinant to your decision and why?
• How would you be able to apply this particular financial information to other situations?
• Discuss risk methodologies used in capital budgeting.

Reference no: EM131211610

Questions Cloud

Show the region of satisfactory system performance : By making a plot of output SNR versus demodulation phase-error variance for the case in which normalized mean-square error is 0.4%, show the region of satisfactory system performance. Repeat for a DSB system. Plot both curves on the same set of ax..
Why stereophonic broadcasting is more sensitive : The process of stereophonic broadcasting was illustrated in Chapter 3. By comparing the noise power in the l(t)-r(t) channel to the noise power in the l(t)+ r(t) channel, explain why stereophonic broadcasting is more sensitive to noise than nonste..
Allowance for doubtful accounts : At the end of 2017, Carpenter Co. has accounts receivable of $745,400 and an allowance for doubtful accounts of $61,900. On January 24, 2018, the company learns that its receivable from Megan Gray is not collectible, and management authorizes a write..
What is a minimum wage : What is a minimum wage and what are its effects if it is set above the equilibrium wage?
Describe risk methodologies used in capital budgeting : What financial figure do you believe was the determinant to your decision and why? How would you be able to apply this particular financial information to other situations? Discuss risk methodologies used in capital budgeting.
Draw her budget constraint : (a) Draw her budget constraint. (b) What's Maria's optimal hours of consumption and leisure C∗,l∗, and her utility level associated with the optimal bundle.
Company uses the effective-interest amortization method : On January 1, 2014, TCU Utilities issued $1,018,000 in bonds that mature in 10 years. The bonds have a stated interest rate of 5 percent and pay interest on June 30 and December 31 each year. When the bonds were sold, the market rate of interest was ..
Who is the most effective communicator you have known : Who is the most effective communicator you have known? Was it a teacher, coach, supervisor, friend, or family member?- what makes (or made) this person such a good communicator?
Construct incremental analysis : Suppose you need to decide whether to keep a machine or replace it with a new one: Assume both machines produce similar good with similar value that yields similar revenue. Consider income tax of 38% and minimum rate of return 10%. Construct incremen..

Reviews

Write a Review

Risk Management Questions & Answers

  What is meant by the term risk management

What is meant by the term 'risk management' - what are the specific elements of a risk management course of action and Identify control measures to eliminate the risk

  Explain what accounting entries would be done

Suppose that a firm engages in a derivative transaction that qualifies for fair value hedging. Explain what accounting entries would be done and how the firm's earnings and balance sheet would be affected.

  Develop a risk management plan for a company

You are required to develop a risk management plan for a company of your choice, or for an area of the Registered Training Organisation.

  Methodologies in terms of market risk evaluation

Value-at-Risk (VaR) is defined as the probability of suffering a loss in excess of a given threshold or confidence interval. Can you analyse and appreciate the existing VaR methodologies in terms of market risk evaluation?

  Describe the main methods used to reduce the risks

Describe the main methods used to reduce the risks to health & safety when building the superstructure. Include the main H&S regulations that apply in this case

  How might boards and senior executives be affected

What possible effects might rating agencies, regulators, and government officials have on risk management in the next 10 years? How might boards and senior executives be affected by these changes in risk management?

  Discuss how political risk differs from country risk

Discuss how political risk differs from country risk and in what ways political events in a foreign country can affect local financial operations of an MNC.

  How does the merton model predict pd

How does the Merton Model predict PD? Explain its advantages and disadvantages. It is often stated that the credit ratings captured by alpha-numeric notations are the shortest editorials that could be ever written.

  Discuss the risk management process

Discuss the risk management process, as it applies to the firm and identify loss types for pure risks, and for damage to assets.  Discuss direct and indirect losses.

  What are your thoughts on alternate energy sources

List the industries that would be impacted favourably and unfavourably. What are your thoughts on alternate energy sources? Please explain your views.

  How did the risk factor calculation improve your ability

How did the risk factor calculation improve your ability to rank the risks? How does having a risk ranking done with the risk factor equation help in focusing on the most strategic risks?

  What is its relevance for credit portfolio management

Explain credit concentration risk. What is its relevance for credit portfolio management? What is maturity risk? Describe some of the ways in which this risk can be managed by financial intermediaries.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd