$2‚000 at the end of each year for the next 20 years. If Bill can earn an effective return of 12 per cent per annum on his contributions‚ how much will he have accumulated at the end of twenty years‚ rounded to the nearest dollar? (A) (B) $19‚292 (C) $144‚105 (D) 3. $14‚938 $40‚000 A firm’s profit before tax is $150 000 and depreciation expense is $30‚000. Assuming a company tax rate of 30%‚ the firm’s cash flow from operations is: (A) $840‚000 (B) $180‚000
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CAPITAL BUDGETING Capital budgeting is the making of long term planning decision for investment fixed assets and their financing. Capital budgeting decision is concerned with current investment that will pay for itself and yield an acceptable rate of return over its life span. Hampton (1992) defines capital budgeting as the decision making process by which firms evaluate the purchase of major fixed assets‚ including buildings‚ equipment. It also covers decisions to acquire other firms‚ either through
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ROI: is the rate of return on the investment on the idea/item which will generate a profit‚ making it attractive to investors. The average ROI for an orphan drug is 54%( https://www2.deloitte.com). The cost of Ornecia per patient‚ per year is $110‚000; which is on average
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Acquisition of ARI was a major capital budgeting decision for the MRC management. Many formal methods are used in capital budgeting‚ including the techniques such as • Accounting rate of return • Net present value • Profitability index • Internal rate of return • Modified internal rate of return • Equivalent annuity Here in our case‚ we have used Net Present Value or NPV‚ which is estimating the size and timing of all the incremental cash flows from the project. These
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students to review: * Questions answered incorrectly. * Questions answered correctly. * Students answers. * Correct answers. Question 1 - Multiple Choice ID: 5129112 | Correct | | Question: The most commonly quoted interest rate for Eurodollar overnight lending is known as | | | | FIBOR | | LIBOR | | PIBOR | | None of the above | | | Question 2 - Multiple Choice ID: 5129179 | - The correct answer has been circled. | | Question: Cash
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correlated with one another. The later continues to remain in the system and its presence is acknowledged by beta. The sources of unsystematic risk include the firm’ s financing decisions and the firm’ s operations. A higher beta increases the required rate of return. Question 2 a. Equity = 0.25($6‚000) = $1‚500. Current ROE = New ROE = NI $240 = = 16%. E $1‚500 $300 $1‚500 = 0.20 = 20%. ∆ROE = 20% - 16% = 4%. 1 b. This question requires working backwards through the income statement from net income
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budgeting process is identical to the decision process used by individuals making investment decisions. These steps are involved: 1. Estimate‚ evaluate‚ & assess the riskiness of the cash flows 2. Determine the appropriate discount rate B) Answer: Projects are independent if the cash flows of one are not affected by the acceptance of the other. On the other hand‚ two projects are mutually exclusive if acceptance of one impacts adversely the cash flows of the other; that is‚ at
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(Megginson‚ Smart‚ Graham‚ 2010). Capital budgeting analysis is really a test to see if the benefits (cash inflows) are large enough to repay the company for three things the cost of the asset‚ the cost of financing the asset (interest) and a rate of return (Investopedia‚ n.d.). The capital budget process involves three basic steps: 1) Identifying potential investments. This is the “idea” phase. Ideas can come from anywhere and in various stages from just a thought (many times R &D) to an expansion
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level with a percentage 85.92%. This means that the Fowler Building is a lot more risky than Alison Green. Exhibit 5 tells us the expected cash flows for each property‚ and through the expected cash flows we find the Net Present Value and the internal
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Integrated Case 11-24 Allied Components Company Basics of Capital Budgeting You recently went to work for Allied Components Company‚ a supplier of auto repair parts used in the after-market with products from Daimler‚ Chrysler‚ Ford‚ and other automakers. Your boss‚ the chief financial officer (CFO)‚ has just handed you the estimated cash flows for two proposed projects. Project L involves adding a new item to the firm’s ignition system line; it would take some time to build up the market for this
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