in a historical district located within Boston‚ Massachusetts. The building is located on Revere Street and has a listing price of $350‚000. Mr. Alexander is evaluating the possible commitment to understand what he stands to gain from the annual cash flows while at the same time understanding the risks involved. The subject property is located within a historical district and is not yet capable of housing tenants. Property will require significant improvements prior to inhabitation. Client will
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Caledonia Products Cash Flow Analysis and Project Risk Caledonia Products must be aware of their cash flows and the affects of various outside influences over the life of their projects. Knowing where and how the cash is flowing is key to successful capital budgeting. Many risks are involved with funding investments; it just depends on the perspective in which they are being observed to determine if they are worth the cash flow. Capital-budgeting decisions‚ affects on cash flows‚ and project risk
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should open‚ a thorough analysis of the payback period‚ profitability index‚ average accounting return‚ net present value‚ internal rate of return‚ and the modified internal rate of return have been conducted. Table 1. Cash flow on Investment Tax rate= 38% Year 0 Cash flow (outflow) on investment Opportunity cost of using land= $7‚000‚000 Cost of equipment= $85‚000‚000 Total $92‚000‚000 Table 2. MACRS 7-Year Schedule MACRS 7 years schedule Year Depreciation 1 14.29%
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Decision Trees for Decision Making The management of a company that I shall call Stygian Chemical Industries‚ Ltd.‚ must decide whether to build a small plant or a large one to manufacture a new product with an expected market life of ten years. The decision hinges on what size the market for the product will be. Possibly demand will be high during the initial two years but‚ if many initial users find the product unsatisfactory‚ will fall to a low level thereafter. Or high initial demand might
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statements. A) True B) False 7) A company that produces drugs is preparing a balance sheet. Which of the following would be most likely to be considered a long-term asset on this balance sheet? A) a patent for a drug held by the company B) the cash reserves of the company C) commercial paper held by the company D) the inventory of
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Caledonia focus on cash flows or accounting profits in making its capital-budgeting decisions? Should the company be interested in incremental cash flows‚ incremental profits‚ total free cash flows‚ or total profits? Caledonia should focus on cash flows‚ not accounting profits. Free cash flows are able to be reinvested‚ whereas accounting profits are shown when they are earned‚ not when the cash is actually received. The company should be interested in incremental after-tax cash flows. The incremental
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CHAPTER 6 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Answers to Concepts Review and Critical Thinking Questions 1. Assuming conventional cash flows‚ a payback period less than the project’s life means that the NPV is positive for a zero discount rate‚ but nothing more definitive can be said. For discount rates greater than zero‚ the payback period will still be less than the project’s life‚ but the NPV may be positive‚ zero‚ or negative‚ depending on whether the discount rate is less than
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020‚000.00 Net income/ Accounting Profits $4‚356‚000.00 $8‚316‚000.00 $9‚900‚000.00 $5‚148‚000.00 $1‚980‚000.00 Cash flow $5‚956‚000.00 $9‚916‚000.00 $11‚500‚000.00 $6‚748‚000.00 $3‚580‚000.00 Additional net working capital -$100‚000.00 -$2‚000‚000.00 -$1‚500‚000.00 -$600‚000.00 $1‚800‚000.00 $2‚400‚000.00 Capital expenditure -$8‚000‚000.00 Free cash flow -$8‚100‚000.00 $3‚956‚000.00 $8‚416‚000.00 $10‚900‚000.00 $8‚548‚000.00 $5‚980‚000.00 Solution
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Master Budget Master Budget Definition The master budget is the aggregation of all lower-level budgets produced by a company’s various functional areas‚ and also includes budgeted financial statements‚ a cash forecast‚ and a financing plan. The master budget is typically presented in either a monthly or quarterly format‚ and usually covers a company’s entire fiscal year. An explanatory text may be included with the master budget‚ which explains the company’s strategic direction‚ how the master
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ACCT 712 Final Exam 1. Net cash will be different from a company’s net income because of the changes in working capital (inventories‚ receivables‚ etc.) which is derived in the operating flows on a cash flow statement. By taking net income and making adjustments to reflect the changes‚ net cash flow from operating section will show how cash was generated. Another main reason is the translation process from accrual accounting to cash accounting because for example revenue reported on a accrual
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