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Assume that no increase in net working capital will be required as a result of this project. Compute the project's annual net cash flows for the next 10 years, assuming that the new processing unit
What are variable costs and fixed costs? What are some examples of each? How are these costs estimated in forecasting operating expenses?
What are the strengths and weaknesses of the accounting rate of return approach?
What are the two main disadvantages of discounted payback? Is the payback method of any real usefulness in capital budgeting decisions? Explain.
Assuming that purchasing power parity (PPP) holds, how many Swiss francs are required to purchase one U.S. dollar?
What are three potential flaws with the regular payback method? Does the discounted payback method correct all three flaws? Explain.
What are the primary strengths and weaknesses of the payback approach in capital budgeting?
The modified IRR (MIRR) alleviates two concerns with using the IRR method for evaluating capital investments. What are they?
How is risk defined in capital budgeting analysis? List several aspects of a project in which risk is involved and how risk can affect a project's net present value.
How does the net present value model complement the objective of maximizing shareholder wealth?
SDJ, Inc., has net working capital of $1,100, current liabilities of $4,180, and inventory of $1,600. What is the current ratio? What is the quick ratio?
How does the basic net present value model of capital budgeting deal with the problem of project risk? What are the shortcomings of this approach?
How is the per-unit contribution related to the accounting operating profit break-even point?
Explain the difference between marginal and average tax rates, and identify which of these rates is used in capital budgeting and why.
Explain why the required rate of return on a firm's assets must be equal to the weighted average cost of capital associated with its liabilities and equity.
How are project classifications used in the capital budgeting process?
Holding all other things constant, does a decrease in the marginal tax rate for a firm provide incentive for the firm to increase or decrease its use of debt?
The firm paid out $220,000 in cash dividends, and it has ending total equity of $5.5 million. If Storico currently has 400,000 shares of common stock outstanding, what are earnings per share?
How do we adjust for depreciation when we calculate incremental after-tax free cash flow from EBITDA? What is the intuition for the adjustment?
If a firm has a fixed asset base, meaning that its depreciation and amortization for any year is positive, discuss the relation between its Accounting DOL and its Cash Flow DOL.
What is the present value of his cash flows if he goes to college first, foregoing the opportunity to earn an income in the next 4 years?
If a firm's costs (both variable as well as fixed) are known with certainty, then what are the only two sources of volatility for the firm's operating profits or its operating cash flows?
The CFO estimates that a proposed expansion would require an investment of $5.9 million. What is the WACC for the last dollar raised to complete the expansion?
Donut Delite has total assets of $31,300, long-term debt of $8,600, net fixed assets of $19,300, and owners' equity of $21,100. What is the value of the net working capital?
List and describe each of the three methods used to calculate the cost of common stock.