Reference no: EM132443149

Financial Management

 1.   LTC and NPV are two methods for valuating a long term capital expenditure.  Please describe a situation where it would be better to use LTC instead of NPV, and then vice versa.  Please be specific with the situations.

 Concept question: Why is it important to consider the cost of long term capital expenditures when they reside on the balance sheet?

 2.  In the notes that I prepared for you in the Module 9: media and resources section, I gave you an example of calculating NPV.  I want you to use that example and calculate what the PV would be if the payments were an equal amount and tell me which one is better and why?Please use the example with 11% required return.

 Concept question: Why do we calculate the net present value?

 3.  You have a business that requires the replacement of two 50,000- BTU heating units. Compare the total costs of these units from three manufacturers. Assume that the heaters will be placed in use and will last 10 years. Which company provides heaters with the lowest total cost?

 Concept question:  How might depreciation and tax credits factor into your decision-making process?

4.  The Ohm Depot Co. is currently considering the purchase of a new machine that would increase the speed of manufacturing electronic equipment and save money. The net cost of the new machine is $ 66,000. The annual cash flows have the following projections:

 Year                               Amount ($)

0                                      ( 66,000)

1                                      21,000

2                                      29,000

3                                      36,000

4                                      16,000

5                                      8,000

  If the cost of capital is 10 percent, find the following:

• The NPV
• The IRR
• Payback
• PI

 Concept question: What other factors besides the return on investment should you consider when making a major capital purchase?