Explain how you would derive a required rate of return for your capital budgeting analysis. What...
Explain how you would derive a required rate of return for your capital budgeting analysis. What type of information would you use to derive the required rate of return?
Homework Answers
The required rate of return is generally the weighted average cost of capital of the business. A business uses various sources of finance to fund its capital needs. The weighted average cost of capital represents the opportunity cost of funds. This should be adjusted for risk involved in a particular project to finally arrive at a discount rate used for project.
Information required for deriving the discount rate would be the after-tax cost of various sources of funds, their weights in the capital structure and the estimation of risk of the project.
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Explain how you would derive a required rate of return for your capital budgeting analysis. What...
1. A capital budgeting project is acceptable if the rate of return required for such a...
1. A capital budgeting project is acceptable if the rate of return required for such a project is greater than the project's internal rate of return. True False
Suppose you are running a capital budgeting analysis on a project with an estimated cost of...
Suppose you are running a capital budgeting analysis on a project with an estimated cost of $2 million. The project is considered similar to the existing lines of businesses for the company. Given the cash situation, the company will fund the project completely with a new debt of $2 million. This new debt will be issued at 6% interest for 10 years. The company has an estimated 8% WACC. When conducting the capital analysis on this project, what should be...
The basic principles of capital budgeting are valid for both domestic and multinational capital budgeting analysis....
The basic principles of capital budgeting are valid for both domestic and multinational capital budgeting analysis. However, it is important to recognize the unique risks that multinational firms face when they perform capital budgeting analysis in a foreign market. For instance, a U.S.-based multinational firm might conduct business in Brazil, but any profits made must be repatriated, or returned, to the parent company and converted to U.S. dollars. There are significant risks inherent in these rather simple operations. In the...
The Internal Rate of Return for capital budgeting projects is best described as: Select one: a....
The Internal Rate of Return for capital budgeting projects is best described as: Select one: a. The rate of return required by management O b. The rate of return that would be earned if the company funded the project via operating cash flows instead of external sources of funding C. The actual rate of return that would be earned based on the projected net cash flow calculations d. The minimal rate of return required by the IRS to allow a...
Can simulation analysis be used on capital budgeting problems? What would be the primary advantages and disadvantag...
Can simulation analysis be used on capital budgeting problems? What would be the primary advantages and disadvantages of using simulation analysis on capital budgeting problems? Reply
Ch 11: Assignment - The Basics of Capital Budgeting The internal rate of return (IRR) refers...
Ch 11: Assignment - The Basics of Capital Budgeting The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case of Blue Llama Mining Company: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,450,000 Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however,...
You just finished a capital budgeting investment analysis on a $198 million project. The project's life...
You just finished a capital budgeting investment analysis on a $198 million project. The project's life is 12 years and it will generate equal annual after-tax cash operating cash flows of $33.05 million. You assumed a $55 million salvage value, but the projecť's adjusted tax basis at termination will be $66 million. The project would have no effect on net working capital. With a 22% marginal tax rate, the resulting NPV is $41.628 million. What cost of capital did you...
Question 4 (1 point) 1. A capital budgeting project is acceptable if the rate of return...
Question 4 (1 point) 1. A capital budgeting project is acceptable if the rate of return required for such a project is greater than the project's internal rate of return. True False
If you were to rank the capital budgeting techniques from best to worst, what would your...
If you were to rank the capital budgeting techniques from best to worst, what would your ranking look like? Be sure to support your answer.
Alice Werd is a new project analyst; he is working on capital budgeting analysis of two...
Alice Werd is a new project analyst; he is working on capital budgeting analysis of two mutually exclusive projects. The followings are the cash flow forecasts for both the projects years Project A Expected Cash flows Project B Expected Cash flows 0 (1000,000) ($900,000) 1 50000 650,000 2 200,000 650,000 3 600,000 550,000 4 1000,000 300,000 5 1500,000 100,000 The following metrics presents the key information based on capital budgeting indicators. For purposes of analysis, he plans to use a...
1. A capital budgeting project is acceptable if the rate of return required for such a project is greater than the project's internal rate of return. True False
The basic principles of capital budgeting are valid for both domestic and multinational capital budgeting analysis. However, it is important to recognize the unique risks that multinational firms face when they perform capital budgeting analysis in a foreign market. For instance, a U.S.-based multinational firm might conduct business in Brazil, but any profits made must be repatriated, or returned, to the parent company and converted to U.S. dollars. There are significant risks inherent in these rather simple operations. In the...
The Internal Rate of Return for capital budgeting projects is best described as: Select one: a. The rate of return required by management O b. The rate of return that would be earned if the company funded the project via operating cash flows instead of external sources of funding C. The actual rate of return that would be earned based on the projected net cash flow calculations d. The minimal rate of return required by the IRS to allow a...
Can simulation analysis be used on capital budgeting problems? What would be the primary advantages and disadvantages of using simulation analysis on capital budgeting problems? Reply
Ch 11: Assignment - The Basics of Capital Budgeting The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case of Blue Llama Mining Company: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,450,000 Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however,...
You just finished a capital budgeting investment analysis on a $198 million project. The project's life is 12 years and it will generate equal annual after-tax cash operating cash flows of $33.05 million. You assumed a $55 million salvage value, but the projecť's adjusted tax basis at termination will be $66 million. The project would have no effect on net working capital. With a 22% marginal tax rate, the resulting NPV is $41.628 million. What cost of capital did you...
Question 4 (1 point) 1. A capital budgeting project is acceptable if the rate of return required for such a project is greater than the project's internal rate of return. True False
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