What are the important administrative considerations

Assignment Help Finance Basics

Reference no: EM13833776

DQ 1 - What are the important administrative considerations in the capital budgeting process?

DQ 2 - Why does capital budgeting rely on the analysis of cash flows rather than net income?

DQ 3 - What are the weaknesses of the Payback Method?

DQ 4 - What is normally used as the discount rate in the Net Present Value method?

Problems

5 Assume a $50,000 investment with the following two cash flow alternatives.

OPTION A OPTION B

Year 1 $10,000 $20,000

Year 2 $11,000 $25,000

Year 3 $13,000 $15,000

Year 4 $16,000 0

Year 5 $30,000 0

Which alternative would you select under the Payback Method?

6 In problem 5, if the cash flow for year 5 of Option A was $30,000,000 instead of $30,000, would your answer change under the Payback Method?

11 Home Security Systems is analyzing the purchase of a $40,000 piece of equipment. The cash flows generated will be:

Year 1 $15,000

Year 2 $20,000

Year 3 $25,000

Year 4 $10,000

Year 5 $5,000

What is the procject's Internal Rate of Return (approximate)?

If the Cost of Capital is 12%, should the project be accepted?

13 Hamilton COntrol Systems will invest $90,000 into a project that will generate the following cash flows:

Year 1 $23,000

Year 2 $38,000

Year 3 $60,000

At the end of three years, the company will incur a $15,000 cost to shut the project down.

If the Cost of Capital is 10%, should the project be undertaken? (use the Net present Value method)

15 Hudson Corporation is considering investing $14,400 into a project that will generate the following cash flows:

Year 1 $7,000

Year 2 $7,000

Year 3 $4,000

Assuming a cost of capital of 11%, what is the project's Net Present Value?

What is the project's Internal rate of Return?

Should you undertake the project?

Reference no: EM13833776

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