QUESTION Under what conditions is the WACC the appropriate discount rate for a project? It is now generally accepted that discounted cashflow techniques for evaluating projects are far superior to the use of simple payback approaches or accounting rates of return. The shareholder value-added approach enhances these techniques further. However, to use these techniques requires […]
QUESTION Steve and Ed are cousins who were both born on the same day, and both turned 25 today. Their grandfather began putting $2,500 per year into a trust fund for Steve on his 20th birthday, and he just made a 6th payment into the fund. The grandfather (or his estates trustee) will make40 more […]
QUESTION There is an active, competitive leasing (i.e., rental) market for most standard types of commercial jets. Many of the planes flown by the major domestic and international airlines are not owned by them but leased for periods ranging from a few months to several years.Gamma Airlines, however, owns two long-range DC-11s just withdrawn from […]
QUESTION 1. A firm has a common stock with a market price $55 per share and an expected dividend of $2.81 per share at the end of the coming year. The dividends paid on the outstanding stock over the past five years are as follows:Year Dividend1 $2.002 $2.143 $2.294 $2.455 $2.62The cost of the firms […]
QUESTION Project X is very risky and has an NPV of $3 million. Project Y is very safe and has an NPV of $2.5 million. They are mutually exclusive, and project risk has been properly considered in the NPV analyses. Which project should be chosen? Explain. Project X has NPV of $ 3 Million Risky […]
QUESTION Data for Morton Chip Company and its industry averages follow.Calculate the indicated rationsConstruct the extended DuPont equation for both Morton and the industryOutline Mortons strengths and weaknesses aas revealed by your analysisSuppose Morton had doubled its sales as well as its inventories, ¦ The ratios for Morton given the Balance Sheet and Income Statement […]
QUESTION NPV versus IRR Bumbles Bees, Inc., has identified the following two mutually exclusive projects:a. What is the 1RR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct?b. if the required return is 11 percent, what is the NPV for each of these […]
QUESTION Can you use an example to explain how time value of money can be applied to your personal money management? Compare the difference between bonds and common stocks. If your investment portfolio only includes bonds and stocks, what percentage of your investment will be bonds and what percentage of yo¦ Theory Of Time Value […]
QUESTION In capital budgeting, what is a conventional cash flow pattern? s with a conventional cash flow pattern will have the following mathematical signs with plus denoting inflow and minus denoting outflow, . The project has an initial outflow in period zero which is accompanied by cash inflows in the period 1-5. ANSWER: […]
QUESTION How is the profitability index (PI) related to the NPV method? What does the PI measure? mutually exclusive projects when evaluated on the basis of Net Present Value and profitability index. For example if the Present Value of cash inflows for two projects A and B is $ 10,000 and $ 20,000 with the […]
