Homework Answers
1. The value of resources used in an investment project should be measured in terms of their opportunity cost.
As we are losing the opportunity to invest the fund elsewhere.
2.The investment opportunity curve is a schedule of projects arranged in descending order according to their expected rates of return.
This well help the investor with limited funds to take decision regarding where to invest their money based on this schedule and helping shareholders to increase their value.
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The value of resources used in an investment project should be measured in terms of their_cost Acquisition Historic...
Blyft, an app that arranges for people to pick you up on their bicycles, has developed the follow...
Blyft, an app that arranges for people to pick you up on their bicycles, has developed the following schedule of potential investment projects that may be undertaken over the next year: Project Cost (millions) Expected Return $3 $2 20% 22% $5 $2 $1 10% 12% 8% 25% .Draw a graph plotting the firm's investment opportunity curve (loC) and its marginal cost of capital curve (MCC). Be sure to label your graph clearly. Assume that the firm's marginal cost of capital...
The Ajax Corporation has the following set of projects available to it: ITT Investment Required Expected...
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Which of the following criteria should be used to choose a project if there is a...
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Thor Industries is bidding on a contract for a 2-year investment project. The customer requires you...
Thor Industries is bidding on a contract for a 2-year investment project. The customer requires you to produce 500,000 widgets per year and the operating costs to produce that quantity of widgets is $3.25 million per year. The project will require an initial investment of $250 million for equipment that will be depreciated straight-line to zero over the two-year life. The equipment is expected to be scrapped for $10 million at the end of the project. The project will also...
Thor Industries is bidding on a contract for a 2-year investment project. The customer requires you...
Thor Industries is bidding on a contract for a 2-year investment project. The customer requires you to produce 500,000 widgets per year and the operating costs to produce that quantity of widgets is $3.25 million per year. The project will require an initial investment of $250 million for equipment that will be depreciated straight-line to zero over the two-year life. The equipment is expected to be scrapped for $10 million at the end of the project. The project will also...
Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered...
Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $23,251 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $307. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of-year NWC requirements...
Only say choice 8. In order to maximize firm value, management should invest in new assets...
Only say choice
8. In order to maximize firm value, management should invest in new assets when the internal rate of retum a. greater or equal to the firm's marginal cost of capital. b. greater than the cost of debt financing. c. less than or equal to the accounting rate of return. 9. The cost of capital is: a. the opportunity cost of using funds to invest in new projects. b. the rate of return the firm must ean on...
Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered...
Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $22,164 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $303. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of-year NWC requirements...
1. Assume that you are analyzing a proposed asset acquisition where the assets will cost $5...
1. Assume that you are analyzing a proposed asset acquisition where the assets will cost $5 million, plus $200,000 to have them delivered and installed. The project will result in sales of 6000 units in the first year of operations. The sales price will be $190 per unit and the operating costs (excluding depreciation) will be $140 per unit. The assets will be depreciated using the MACRS 5-year rates. The project will require a level of net working capital of...
Problems – Find the Net Present Value and Benefit Cost Ratio for the following: 1.An investment...
Problems – Find the Net Present Value and Benefit Cost Ratio for the following: 1.An investment in new software is expected to have the following cash flows over a three-year period. The discount rate is 12 percent? Year Cash Flow 0 -$28,900 1 $12,450 2 $19,630 3 $ 2,750 A layoff is expected to have an immediate restructuring charge of $7,500 and save money for the firm according to the schedule below. The firm’s weighted average cost of capital is...
Blyft, an app that arranges for people to pick you up on their bicycles, has developed the following schedule of potential investment projects that may be undertaken over the next year: Project Cost (millions) Expected Return $3 $2 20% 22% $5 $2 $1 10% 12% 8% 25% .Draw a graph plotting the firm's investment opportunity curve (loC) and its marginal cost of capital curve (MCC). Be sure to label your graph clearly. Assume that the firm's marginal cost of capital...
The Ajax Corporation has the following set of projects available to it: ITT Investment Required Expected Rate of Return ($ Million) Project (%) 500 A 23.0 175 18.0 50 21.0 125 16.0 E 300 14.0 150 13.0 250 19.0 Note: All projects have equal risk. Calculate the cumulative investment and complete Ajax's schedule of potential projects. (Hint: Ajax prioritizes projects according to their expected rates TTT of return.) Investment Required Expected Rate of Return Cumulative Investment ($ Million) Project ($...
Thor Industries is bidding on a contract for a 2-year investment project. The customer requires you to produce 500,000 widgets per year and the operating costs to produce that quantity of widgets is $3.25 million per year. The project will require an initial investment of $250 million for equipment that will be depreciated straight-line to zero over the two-year life. The equipment is expected to be scrapped for $10 million at the end of the project. The project will also...
Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $23,251 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $307. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of-year NWC requirements...
Only say choice
8. In order to maximize firm value, management should invest in new assets when the internal rate of retum a. greater or equal to the firm's marginal cost of capital. b. greater than the cost of debt financing. c. less than or equal to the accounting rate of return. 9. The cost of capital is: a. the opportunity cost of using funds to invest in new projects. b. the rate of return the firm must ean on...
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