a. What is the payback period on each of the following projects? Payback period: A 3 years, B 2 years, C 3years

b. Given that you wish to use the payback rule with a cutoff period of two years, which projects would you accept? “B” Only B meetsthe given cutoff period.
c. If you use a cutoff period of three years, which projects would you accept? “A, B, C” All the projects meet the given cutoff period, thus, every project (A, B, C) is acceptable. (In terms of NPV, since B has the highest NPV, B is the best option.)

d. If the opportunity cost of capital is 10%, which projects have positive NPVs?

“B & C” have the positive NPV at the capital cost of 10%.

e.“If a firm uses a single cutoff period for all projects, it is likely to accept too many short- lived projects.” True or false?

“False” Assuming the definition of “short-lived projects” is “projects with short period of cash flow”, since the concept of payoff period doesn’t consider the cash flow after the payoff, the single cutoff period doesn’t block the long-lived projects (the projects generating long period of cash flow).

#4
You have the chance to participate in a project that produces the following cash flows:The internal rate of return is 13%. If the opportunity cost of capital is 10%, would you accept the offer? Since the internal rate of return is greater than the opportunity cost of capital, there is NO point of accepting this project.

#5
Consider a project with the following cash flows:
a. How many internal rates of return does this project have?

b. Which of the following numbers is the project IRR: (i) -50%; (ii) -12%; (iii) +5%; (iv)+50%? As calculated in problem “a”, the project IRRs are (i) -50% &(iv)+50%. c. The...

...costs each year. The machine will have a useful life of 10 years. For tax purposes, straight-line depreciation will be used with an estimated salvage value of $300,000 (which will be the market value at that time). The discount rate is 12% and the corporate tax rate is 32%. What is the NPV of this proposal?
11.3 After examining a potential project’s NPV analysis, the manager advises that the initial fixed capital outlay be increased by $480,000. The initial fixed capital...

...ROLE AND PURPOSE This subject aims to introduce to students a range of basic concepts and ideas in modern finance. After completing this subject, participants should know the principles involved in making investment and financing decisions, understand functions of financial markets and financial managers, and possess basic knowledge of option pricing and financial planning. This foundation course prepares students for more in‐depth studies at a later stage. LEARNING OUTCOMES...

...The Net Present Value, Mergers and Acquisitions
Michael D. Black
Trident University
Module 5 CASE
Finance 501: Strategic CorporateFinance
Professor: Walter Witham
June 15, 2012
Net Present Value, Mergers and Acquisitions
Abstract
Financial managers must understand the value of dollars invested today in order to make decisions as to what capital ventures are worth pursuing for business growth. The money a business...

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The same income getting taxed multiple times.
Maximizing shareholder value
Management principle that implies that the ultimate measure of a company’s success is the extent to which it enriches its shareholders.
Initial Public Offering
Stock Launch – stock in a company is sold to the general public for the first time
Sole Proprietorship, Partnership, Corporation, LLC, Subchapter S Corp (Pros and Cons of each)
Sole Proprietorship
Pros
Simplicity and ease of operation...

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...the bond. As a result, using the coupon rate could cause a large depreciation of funds.
2. Compute the cost of common equity using the CAPM model. For beta, use the average beta of three selected competitors. You may obtain the betas from Yahoo Finance. Assume the risk free rate to be 3% and the market risk premium to be 4%.
Betas from Raytheon (0.75), Lockheed Martin (0.64), and Boeing (1.11) create an average of 0.8333.
a. What is the cost of common equity? (5 pts)...

...method is a better method to use, and not the coupon rate as the required
return for debt.
2. Compute the cost of common equity using the CAPM model. For beta, use the average
beta of three selected competitors. You may obtain the betas from Yahoo Finance.
Assume the risk free rate to be 3% and the market risk premium to be 4%.
Risk free Rate 3%
Market risk premium, MRP 4%
Competitors Beta As on October 6, 2010
Dendreon Corp .65...

...TOKYO DISNEYLAND AND THE DISNEY SEA PARK: CORPORATE GOVERNANCE AND DIFFERENCES IN THE CAPITAL BUDGETING CONCEPTS AND METHODS BETWEEN AMERICAN AND JAPANESE COMPANIES.
1.What are the industry differences in US Corporate Governance and Japanese Corporate Governance?
JAPANIES CORPORATE GOVERNANCE US CORPORATE GOVERNANCE
Stakeholders of organiztions:
Japanies system believs in the wealth maximization of stake holders,...