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Question
Briefly explain why each of the following should or should not be considered in forecasting incremental cash flows from a project:a. the cost of building a prototype of a new product to see if it was feasible.
b. market research suggests that after buying a company's "smart phone" customers will begin to buy more of the same company's notebook computers.
c. a company decides to use existing space for storage. The company could have rented the space to another business for $2,500 a month.
Answer
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Related questions
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A new forklift under consideration by Home Warehouse requires an initial investment of $100,000 and produces annual cash flows of $50,000, $40,000, and $30,000. Which of the following will not change if the required rate of return is increased from 10% to 12%.
A) The net present value.
B) The internal rate of return.
C) The profitability index.
D) The modified internal rate of return.
Q:
Initial Outlay Cash Flow in Period
1 2 3 4
-$4,000 $1,546.17 $1,546.17 $1,546.17 $1,546.17
The IRR (to the nearest whole percent) is:
A) 10%.
B) 18%.
C) 20%.
D) 16%.
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Dieyard Battery Recyclers is considering a project with the following cash flows:
Initial outlay = $13,000
Cash flows: Year 1 = $5,000
Year 2 = $3,000
Year 3 = $9,000
If the appropriate discount rate is 15%, compute the NPV of this project.
Q:
The equivalent annual cost method is most appropriate in which of the following situations? In each case, assume that several mutually exclusive options are available.
A) Introducing a new product line
B) Adding another store to a chain of retail stores
C) Installation of federally mandated safety equipment
D) Equipment to reduce production costs
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WSU Inc. has various options for replacing a piece of manufacturing equipment. The present value of costs for option Ell is $84,000. Option Ell has a useful life of 5 years; annual operating costs were discounted at 9%. What is the equivalent annual cost?
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Project EH! requires an initial investment of $50,000, and has a net present value of $12,000. Project BE requires an initial investment of $100,000, and has a net present value of $13,000. The projects are mutually exclusive. The firm should accept:
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B) project BE.
C) both projects.
D) neither project.
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Suppose you determine that the NPV of a project is $1,525,855. What does that mean?
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B) The project would add value to the firm.
C) Under all conditions, the project's payback would be less than the profitability index.
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The size of capital investments and the difficulty in reversing them once they are made make capital-budgeting decisions very important to the firm.
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Competitive market forces make it imperative for a firm to have a systematic strategy for generating capital-budgeting projects.
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Good capital investment opportunities are most likely to exist when:
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B) interest rates are high and rising.
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B) $15
C) $20
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P/E ratios found in published sources or on the internet are always computed by dividing the next period's expected earnings into the current price of the stock.
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Apple stock is now selling for $315.32 per share. The P/E ratio based on current earnings is 23.72 and the P/E ratio based on expected earnings is 17.48. The expected growth rate in Apples earnings must be:
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B) 36%.
C) 7.6%.
D) 5.5%.
Q:
If the ROE on a new investment is less than the firm's required rate of return:
A) the investment increases the firm's value.
B) the investment leaves the firm's value unchanged.
C) the effect on the firm's value is unpredictable.
D) the investment reduces the firm's value.
Q:
McDonald's stock currently sells for $77.50. It's expected earnings per share are $4.50. The average P/E ratio for the industry is 23.3. If investors expected the same growth rate and risk for McDonald's as for an average firm in the same industry, it's stock price would:
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B) rise.
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D) there is not enough information.
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A) .07.
B) 14.
C) 2.14.
D) 30.
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Which of the following factors will influence a firm's P/E ratio?
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B) Firm investment opportunities
C) General market conditions
D) All of the above
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You are considering the purchase of AMDEX Company stock. You anticipate that the company will pay dividends of $2.00 per share next year and $2.25 per share the following year. You believe that you can sell the stock for $17.50 per share two years from now. If your required rate of return is 12%, what is the maximum price that you would pay for a share of AMDEX Company stock?
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Draper Company's common stock paid a dividend last year of $3.70. You believe that the long-term growth in the dividends of the firm will be 8% per year. If your required return for Draper is 14%, how much are you willing to pay for the stock?
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Kelly owns 10,000 shares in McCormick Spices, which currently has 500,000 shares outstanding. The stock sells for $86 on the open market. McCormick's management has decided on a 2-1 split.
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By virtue of its nature, dividend policy is inherently a wealth-creating activity for the firm's owners.
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Dividend payout ratios are generally much lower for small or newly established firms than for large, publicly owned firms.
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The dividend declaration date is the date at which the stock transfer books are to be closed for determining the investor to receive the next dividend payment.
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The ________ designates the date on which the stock transfer books are closed in regard to a dividend payment.
A) declaration date
B) ex-dividend date
C) date of record
D) payment date
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Five years ago, Mr. Martinez purchased 1000 shares of JPM stock at $50 per share. If Mr. Martinez ' tax rate is 25% would he prefer that the company pay a $5.00 per share dividend or offer to repurchase 100 shares at $50 per share?
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B) It would make no difference because he would receive $5,000 either way.
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D) It would make no difference because the tax rate on dividends is the same as the tax rate on capital gains.
Q:
For accounting purposes, a stock split has been defined as a stock dividend exceeding:
A) 25%.
B) 35%.
C) 45%.
D) 55%.
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A stock dividend will cause changes in the dollar value of which of the below capital accounts?
A) Common stock
B) Additional paid-in capital
C) Retained earnings
D) All of the above
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A) There is not enough information to know.
B) EPS will increase by 10%.
C) EPS will not be affected by the stock dividend.
D) EPS will decrease by 10%.