Business Finance Help for College and University Students

Payback

A project that costs $2500 to install will provide annual cash flows of $600 for the next 6 yrs. The firm accepts projects with payback periods of less than 5 years. Will the project be accepted? Should this project be pursued if the discount rate is 2%? What if the discount rate is 12%? Will the firm's decision change as t ...continues

NPV versus IRR

Here are the cash flows for two mutally exclusive projects: Project A: Co : -20,000 C1: +8,000 C2: +8000 C3: +8000 Project B: C0: -20,000 C1: 0 C2: 0 C3: +25,000 a. At what interest rates would you prefer project A to B? b. What is the IRR of each project?

Profitability Index for two projects

Consider the following projects: Project A: C0: -2100 C1: +2100 C2: +1200 Project B: Co: -2100 C1: +1440 C2: +1728 a. Calculate the profitability index for A and B assuming a 22 percent opp. cost of capital b. Use the profitability index rule to determine which project(s) you should accept if you could under ...continues

Proper cash flow to use to evaluate the present value of the introduction of the new chip

Quick Computing currently sells 10 million computer chips each year at a price of $20 per chip. It is about to introduce a new chip, and it forecasts annual sales of 12 million of these improved chips at a price of $25 each. However, demand for the old chip will decrease, and sales of the old chip are expected to fall to 3 milli ...continues

Incremental Cash Flows

Incremental Cash Flows. A corporation donates a valuable painting from its private collection to an art museum. Which of the following are incremental cash flows associated with the donation? a. The price the firm paid for the painting. b. The current market value of the painting. c. The deduction from income that it declare ...continues

Project Evaluation

Revenues generated by a new fad product are forecast as follows: Year 1 : 40,000 Year 2: 30,000 Year 3: 20,000 Year 4: 10,000 Thereafter: 0 Expenses are expected to be 40 percent of revenues, and working capital required in each year is expected to be 20 percent of revenues in the following year. The product req ...continues

Buy versus Lease

Buy versus Lease. You can buy a car for $25,000 and sell it in 5 years for $5,000. Or you can lease the car for 5 years for $5,000 a year. The discount rate is 12 percent per year. a. Which option do you prefer? b. What is the maximum amount you should be willing to pay to lease rather than buy the car?

Project Evaluation

The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $25. Year 1: Unit of Sales: 22,000 Year 2: 30,000 Year 3: 14,000 Year 4: 5,000 Thereafter: 0 It is expected that net working capital will amount to 20 percent of sales in the following ye ...continues

Scenario Analysis

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession .20 -5% +14% Normal economy .60 +15 +8 Boom .20 +25 +4 a. Is it reasonable to assume that Treasury bonds will provide higher re ...continues

Portfolio analysis

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession .20 -5% +14% Normal economy .60 +15 +8 Boom .20 +25 +4 Use the data in the problem and consider a portfolio with weights of .60 in st ...continues