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Elis [28]
3 years ago
9

Suppose a firm has evaluated four capital budgeting projects and, using one of the time value of money-capital budgeting techniq

ues, has determined that all of the projects are acceptable. If the projects are mutually exclusive, which of the following capital budgeting techniques should be used to make the purchasing decision to ensure the firm's value is maximized?
traditional payback period (PB)

the internal rate of return (IRR)

modified internal rate of return (MIRR)

net present value (NPV)
Business
1 answer:
Dima020 [189]3 years ago
6 0

Answer:

The answer is: the following three should be used.

  • net present value (NPV)
  • traditional payback period (PB)  
  • the modified internal rate of return (MIRR)

Explanation:

First of all, the NPV of the four projects must be positive. Only NPV positive projects should be financed. If the NPV is negative, the project should be tossed away. This is like a golden rule in investment.

Now comes the "if" part. What does the company value more, a short payback period or a higher rate of return.

If the company values more a shorter payback period (usually high tech companies do this due to obsolescence), then they should choose the project with the shortest payback period.

If the company isn't that concerned about payback periods, then it should choose to finance the project with the highest modified rate of return. This means that the most profitable project should be financed.

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Assets Current assets $38,000,000 Net plant, property, and equipment $101,000,000 Total assets $139,000,000 Liabilities and Equi
Reil [10]

Answer:

9.73%

Explanation:

the market value of equity = 10,000,000 stocks x $15 = $150,000,000

the market value of debt = 40,000 bonds x $1,150 = $46,000,000

total = $196,000,000

weight of equity = 0.7653

weight of debt = 0.2347

Re = 3.5% + [1.35 x (0.115 - 0.055)] = 0.035 + 0.081 = 0.116

cost of debt = ytm = {36.25 + [(1,000 - 1,150)/40]} /  [(1,000 + 1,150)/2] = (36.25 - 3.75) / 1,075 = 32.50 / 1,075 = 0.03023 x 2 = 0.0605

after tax cost of debt = 0.0605 x (1 - 40%) = 0.0363

WACC = (0.116 x 0.7653) + (0.0363 x 0.2347) = 0.09729 = 9.73%

3 0
3 years ago
Vivian goes to an auction and sees a rare antique lamp that is an identical match to one she already has. At the proper time she
BigorU [14]

Answer:

B

Explanation:

Any auction is either “with reserve” or “without reserve.” And the answer how an auctioneer handles higher bids rests with the type of auction being conducted.

In a with reserve auction, the auctioneer may refuse a higher bid (reserve the right to refuse …) where in a without reserve auction, any higher bid must be accepted.

Said another way, in a with reserve auction, the auctioneer is not bound to sell to the highest bidder. In essence, the next higher increment represents the minimum bid.

4 0
2 years ago
a companys sales in year 1 were 250,000 and in year 2 were 287,500. Using Year 1 as the base year, the percetn change for year 2
Minchanka [31]

Answer:

115%

Explanation:

Computation of the percentage change for year 2 when compared to the base year

Using this formula

Percentage change=(Year 2 Sales /Year 1 Sales )* 100

Let plug in the formula

Percentage change =($287,500/$250,000) * 100

Percentage change =1.15*100

Percentage change = 115%

Therefore the percentage change in year 2 when compared to the base year will be 115%

6 0
3 years ago
A corporate bond matures in one year. The bond promises a $50 coupon and a principal payment of $1,000 at maturity. If an invest
makvit [3.9K]
Promised yield = 1050/938.10 = 11.93%
6 0
3 years ago
Blossom Corporation is authorized to issue 49,000 shares of $5 par value common stock. During 2017, Blossom took part in the fol
Tanzania [10]

Answer:

See explanation section

Explanation:

Requirement A

Debit      Cash                                         $194,600

Credit     Common stock - Par value                             $ 22,500

Credit     Common stock - Additional paid-in-capital   $172,100

Calculation:

Cash:  4,500 shares × $45 = $202,500

As the company's par value is $5,

Common stock - Par value: 4,500 shares × $5 = $22,500

As the market value of the stock is $45, the additional stock value = $45 - $5 = $40. Moreover, the company has issuance cost of $7,900

Additional common stock apart from par value minus the issuance cost = ($4,500 shares × $40) - $7,900 = $180,000 - $7,900 = $172,100.

<em>The company issue common stock with a market value of $45 and issuance cost of $7,900 in exchange of cash.</em>

Requirement B

Debit      Land                                         $50,600

Credit     Common stock - Par value                             $ 5,500

Credit     Common stock - Additional paid-in-capital   $45,100

Calculation:

Land:  1,100 shares × $46 = $50,600

As the company's par value is $5,

Common stock - Par value: 1,100 shares × $5 = $5,500

As the market value of the stock is $46, the additional stock value = $46 - $5 = $41.

Additional common stock apart from par value = ($1,100 shares × $41) = $45,100.

Although the land is appraised for $49,000, due to the increased market price stock, it is valued more.

<em>The company issue common stock with a market value of $46 in exchange for land.</em>

Requirement C

Debit    Treasury Stock          $19,270

Credit              Cash                $19,270

Purchasing share from the stock market is known as treasury stock.

Calculation: Treasury stock = 470 shares × $41 = $19,270

Debit     Cash                          $17,860

Credit    Common Stock - par value                             $2,350

Credit    Common stock - Additional paid-in-capital   $15,510

Calculation:

As the company's par value is $5,

Common stock - Par value: 470 shares × $5 = $2,350

Additional common stock apart from par value = $470 shares × ($38 - $5) = $15,510.

<em>The company issue common stock with a market value of $38 after purchasing those treasury stock at $41 per share.</em>

3 0
3 years ago
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