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Which of the following rules is CORRECT for capital budgeting analysis? a. The interest paid on funds borrowed to finance a project must be included in estimates of the project’s cash flows. b. Only incremental cash flows, which are the cash flows that would result if a project is accepted, are relevant when making accept/reject decisions. c. Sunk costs are not included in the annual cash flows, but they must be deducted from the PV of the project’s other costs when reaching the accept/reject decision. d. A proposed project’s estimated net income as determined by the firm’s accountants, using generally accepted accounting principles (GAAP), is discounted at the WACC, and if the PV of this income stream exceeds the project’s cost, the project should be accepted. e. If a product is competitive with some of the firm’s other products, this fact should be incorporated into the estimate of the relevant cash flows. However, if the new product is complementary to some of the firm’s other products, this fact need not be reflected in the analysis.
You bought a house five years ago for $400,000. At that time you borrowed 80% of its value at a fixed rate 15-year loan at an annual stated rate of 8%, with monthly payments. Should you refinance the remaining balance of your loan with the new bank? ..
Choose a future investment that you would like to make, such as a car or home. State the amount you assume you currently have on hand and the amount of the purchase or down payment. Then determine how much you must save each month before you to make ..
AFN equation Broussard Skateboard's sales are expected to increase by 15% from $8.2 million in 2013 to $9.43 million in 2014. Its assets totaled $3 million at the end of 2013. Use the AFN equation to forecast Broussard's additional funds needed for t..
Paul Adams owns a health club in downtown Los Angeles. He charges his customers an annual fee of $690 and has an existing customer base of 540. Paul plans to raise the annual fee by 6 percent every year and expects the club membership to grow at a co..
Find an announcement of new information made within a month from today (i.e., earnings announcement, merger, etc.) for any publicly traded stock that moves the stock price at least 1%. Print out or draw a chart that shows at least 2 days before the e..
Pizza has finally narrowed down to two college towns, Collegeville and University City, to open their new location this August, just in time for the fall semester. The Collegeville location requires an initial investment of $126,000, whereas Universi..
A firm's dividends have grown over the last several years. 5 years ago the firm paid a dividend of $2. Yesterday it paid a dividend of $7. What was the average annual growth rate of dividends for this firm?
Becker Industries is considering an all equity capital structure against one with both debt and equity. The all equity capital structure would consist of 150,000 shares of stock. The debt and equity option would consist of 100,000 shares of stock plu..
Identify and critically analyse principles and trends in Performance Measurement and Control and determine the different budgeting techniques and critically evaluate their use in short term decision making - Discuss the advantages and disadvantages o..
You have $114,000 to invest in a portfolio containing Stock X, Stock Y, and a risk-free asset. You must invest all of your money. Your goal is to create a portfolio that has an expected return of 16 percent and that has only 84 percent of the risk of..
Karen and Wayne need to buy a refrigerator because theirs just broke. Unfortunately, their savings account is depleted, and they will need to borrow money in order to buy a new one. The bank offers them a personal loan at 21% (APR), and Sears Sears o..
A medication contains 9 mg of active ingredients for every 1 mg of inert ingredients. How much of each kind of ingredient would be in a single 250-mg caplet?
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