CAPITAL BUDGETING PROBLEMS: CHAPTER 10 Answers to Warm-Up Exercises E10-1. Answer: Payback period The payback period for Project Hydrogen is 4.29 years. The payback period for Project Helium is 5.75 years. Both projects are acceptable because their payback periods are less than Elysian Fields’ maximum payback period criterion of 6 years. NPV E10-2. Answer: Year 1 2 3 4 5 Cash Inflow $400,000 375,000 300,000 350,000 200,000 Total $1,389,677.35 Present Value $ 377,358.49 333,748.67
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the project’s economic life will show how much the tax savings will be depreciated each year using the MACRS method. 3) The projects incremental cash flows? These cash flows are those that are relevant to the valuation of the project. In this case it is depreciation. Using the MACRS we can determine for how much the project will be depreciated and what the net cash flows will be after tax and after depreciation. This cash flows are the sum of the depreciation tax saving and the after-tax
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1.1. INTRODUCTION Many small businesses attempt to operate without a formal budget. Even some businesses that have a budget seldom consult it, meaning they are not gaining the business advantages that they could be through budgeting. For start-up entrepreneurs, a budget is like a roadmap that can help them set goals and evaluate the legitimacy of their business idea. For established small businesses, a budget can be used to take the pulse of the business, determining how the business is performing
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Present Values and Capital Budgeting Name Grade Course Tutor’s Name Date Outline 1. Question I a) Calculation of NPV b) NPV using various discount rates; 7%, 5% and 3% c) Analysis of the graph drawn from the various discount rates 2. Question 2 a) Calculation of Present values using various discount rates; 0%, 2%, 6% and 11% b) Calculation of IRR for the projects c) Calculation of present values using 1%, 4%, 10% and 18% as its discounting
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Phone: 312.362.8826 Office: Loop Campus tcarroll@depaul.edu Case Study Questions Capital Budgeting In Practice Ocean Carriers These questions relate to the Ocean Carriers case in your course packet. You can find the data for this case on the course website in a spreadsheet named: Ocean Carriers Exhibits.xls. This case provides the opportunity to make a capital budgeting decision by using discounted cash flow analysis to make an investment and corporate policy
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Capital Budgeting Introduction Capital budgeting is the process of evaluating and selecting long-term investments that are consistent with the firm's goal of maximizing owner wealth. A firm using capital budgeting, their goal is to see if there fixed income will cover itself for profit. Fixed incomes are things such as land, plant and equipment. When a firm using a machine to produce its good or service. They most of the time what the machine to produce the amount that they paid for the machine
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Description This course is designed as an introduction to the terminology, processes, functions, and financial reports commonly encountered in health care operations. This course introduces the concepts of basic managerial financial functions, such as budgeting, reimbursement methods, and the responsibilities of health care financial management. Policies Faculty and students/learners will be held responsible for understanding and adhering to all policies contained within the following two documents:
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Budgeting Get Started What would you do? Mei Po runs a small artisan shop that makes decorations and gifts for the Chinese New Year. Unique hand-crafted touches and a great word-of-mouth reputation keep her products in high demand. Recently, Mei Po learned that the space next door was available to lease. The timing was right as she was looking to expand her business. But as she reviewed the loan application, she noticed that in addition to a business plan, she needed to prepare a one-year budget
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New Heritage Doll (NHD) 1) Briefly discuss one aspect of the “capital budgeting process” at NHD that you believe may be problematic. Focus on the process as described in the case. The aspect of the capital budgeting process at NHD which could be problematic is the open nature of projects which are deemed to have a perpetual return. While the discount rate determination is also open to interpretation, there are only 3 options provided, and each can be run as a sensitivity analysis. For
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CHAPTER 10 CAPITAL BUDGETING FOCUS Our focus in this first capital budgeting chapter begins with the time value concepts behind methods and then moves on to computational and decision making techniques. The problems of cash flow estimation and risk encountered in practice are touched upon here in anticipation of a detailed treatment in a later chapter. PEDAGOGY A brief overview of the cost of capital concept is presented early in the chapter even though it is the subject of
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