Business, 06.06.2020 21:06 jeff568463
The Investment Detective
The essence of capital budgeting and resource allocation is a search for good investments in which to place the firm’s capital. The process can be simple when viewed in purely mechanical terms, but a number of subtle issues can obscure the best investment choices. The capital-budgeting analyst is necessarily, therefore, a detective who must winnow good evidence from bad. Much of the challenge is knowing what quantitative analysis to generate in the first place.
Suppose you are a new capital-budgeting analyst for a company considering investments in the eight projects listed in the table below. The chief financial officer of your company has asked you to rank the projects and recommend the "four best" that the company should accept.
In this assignment, only the quantitative considerations are relevant. No other project characteristics are deciding factors in the selection, except that management has determined that projects 7 and 8 are mutually exclusive.
All the projects require the same initial investment, $2 million. Moreover, all are believed to be of the same risk class. The weighted-average cost of capital of the firm has never been estimated. In the past, analysts have simply assumed that 10 percent was an appropriate discount rate (although certain officers of the company have recently asserted that the discount rate should be much higher).
To stimulate your analysis, consider the following questions:
1. Can you rank the projects simply by inspecting the cash flows? Show your ranking?
2. What criteria might you use to rank the projects? Which quantitative ranking methods are better? Why?
3. What is the ranking you found by using quantitative methods? Does this ranking differ from the ranking obtained by simple inspection of the cash flows?
Note:
You can use an excel sheet for the calculation.
For each Quantitative method you have to write the formula explain how you made the calculations
Answers: 2
Business, 22.06.2019 00:30
Norton manufacturing expects to produce 2,900 units in january and 3,600 units in february. norton budgets $20 per unit for direct materials. indirect materials are insignificant and not considered for budgeting purposes. the balance in the raw materials inventory account (all direct materials) on january 1 is $38,650. norton desires the ending balance in raw materials inventory to be 10% of the next month's direct materials needed for production. desired ending balance for february is $51,100. what is the cost of budgeted purchases of direct materials needed for january? $58,000 $65,200 $26,550 $25,150
Answers: 1
Business, 22.06.2019 13:30
The fiscal 2016 financial statements of nike inc. shows average net operating assets (noa) of $8,450 million, average net nonoperating obligations (nno) of $(4,033) million, average total liabilities of $9,014 million, and average equity of $12,483 million. the company's 2016 financial leverage (flev) is: select one: a. (0.477) b. (0.559 c. (0.323) d. (0.447) e. there is not enough information to determine the ratio.
Answers: 2
The Investment Detective
The essence of capital budgeting and resource allocation is a search for g...
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