Fundamentals of Capital Budgeting: Castle View Games

Fundamentals of Capital Budgeting: Castle View Games

Question from Corporate Finance. By Jonathan Berk, Peter M. DeMarzo published by Prentice Hall

Castle View Games would like to invest in a division to develop software for video games. To evaluate this decision, the firm first attempts to project the working capital needs for this operation. Its chief financial officer has developed the following estimates (in millions of dollars):

Assuming that Castle View currently does not have any working capital invested in this division, calculate the cash flows associated with changes in working capital for the first five years of this investment.

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Management Accounting Multiple Choice Questions (MCQ)

1. Managerial accounting information is generally prepared for

a. stockholders.

b. creditors.

c. managers.

d. regulatory agencies.

2. Managerial accounting information

a. pertains to the entity as a whole and is highly aggregated.

b. pertains to subunits of the entity and may be very detailed.

c. is prepared only once a year.

d. is constrained by the requirements of generally accepted accounting principles.

3. The major reporting standard for presenting managerial accounting information is

a. relevance.

b. generally accepted accounting principles.

c. the cost principle.

d. the current tax law.

4. Managerial accounting is also called

a. management accounting.

b. controlling.

c. analytical accounting.

d. inside reporting.

Managerial Accounting True-False Statements

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Managerial Accounting True-False Statements in $3.50 only

1. Reports prepared in financial accounting are general-purpose reports, whereas reports

prepared in managerial accounting are usually special-purpose reports.

2. Managerial accounting information generally pertains to an entity as a whole and is highly aggregated.

3. Managerial accounting applies to all forms of business organizations.

4. Determining the unit cost of manufacturing a product is an output of financial accounting.

5. Managerial accounting internal reports are prepared more frequently than are classified financial statements.

6. The management function of directing and motivating is mainly concerned with setting goals and objectives for the entity.

7. An organization chart in a manufacturing company replaces the chart of accounts.

8. Controlling is the process of determining whether planned goals are being met.

9. Decision-making is an integral part of the planning, directing and motivating, and controlling functions.

10. Both direct labor cost and indirect labor cost are product costs.

Bauer Industries Free Cashflow Projections

NPV vs discount rate comparison for two mutual...

Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12 to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars):

a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks?

Financial Statement Comparison of PepsiCo and Coca-Cola

Financial Statement Comparison of PepsiCo and Coca-Cola in $21 Only (Instant Download)

Free Sample Answer Given Below

PepsiCo’s financial statements are presented in Appendix A. Financial statements of The Coca-Cola Company are presented in Appendix B.
This is from the appendixes in the 7th edition of financial accounting byWeygandt, kimmel, and kieso.

Instructions:

(a) Based on the information contained in these financial statements, determine each of the following for each company. Please show all numerical equations including numerator and denominator, not just a final number. Present your work in a comparative format using a table as illustrated:
1) Gross profit for 2008 PepsiCo Coca-Cola and Gross profit rate for 2008.

2) Percent change in operating income from 2007 to 2008.

3) Accounts receivable turnover for 2008.

4) Days sales in receivable for 2008.

5) Inventory turnover for 2008.

6) Days inventory on hand for 2008.

7) Increase (decrease) in cash and cash equivalents from 2007 to 2008.

8 ) Asset turnover ratio for 2008.

Car Buying Assignment

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Car Buying Assignment

In this assignment, we will learn how to buy a car and figure out whether it is priced at or below market value.

First, you need to decide on your budget which is the maximum you can spend on a car and that maximum number should take into consideration price, tax, registration, and fixing if needed.

Second, go to the web site: www.cars.com and search for a car in within your budget constraint.

Third, go to the web site: www.kbb.com (The Kelly Blue Book web site) and find out whether the car is at market value, overpriced, or under priced.

Finally, write a two page paper discussing your findings. Issues to explain or discuss:

• Why did you pick the car your picked?
• What are the 3 different prices that Kelly Blue Book provides?
• Based on Kelly Blue Book prices, is the car over or under priced?
• Any surprises, prior experience, feedback, thoughts…etc

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Multiple Choice Questions

Real estate economics - with depreciation

1.   A problem with the specific identification method is that

a.   inventories can be reported at actual costs.

b.   management can manipulate income.

c.   matching is not achieved.

d.   the lower of cost or market basis cannot be applied.

2.     In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

a.   FIFO

b.   LIFO

c.   Average Cost Method

d.    Income tax expense for the period will be the same under all assumptions.

3.     When applying the lower of cost or market rule to inventory valuation, market generally means

a.   current replacement cost.

b.   original cost.

c.   resale value.

d.   original cost, less physical deterioration.

Comparison of Oracle and Microsoft (Ratio Analysis)

Oracle logo at the Oracle headquarters.

For Parts 1 and 2:

Create an Excel spreadsheet to show your computations for the six ratios listed under each part.

For Part 3:

Create an Excel spreadsheet to show your computations for the six ratios listed under this part and also to include (copy and paste) the ratio calculations from the first two parts. In this part, you will calculate the last six ratios as well as comment on all of the ratios calculated so far, including the first twelve ratios calculated under the first two parts. Your comments for each ratio should include more than just a definition of the ratio. You should focus on interpreting each ratio number for each company and support your comments with the numbers found in the ratios.

The summary and conclusion should discuss the liquidity, solvency and profitability of each company.

Part 1

Prepare a four-column worksheet in Excel, with the left-most column (column 1) to write the ratio names, the second column from the left (column 2) to show the calculation of each ratio for Oracle Corporation, the second column from the right (column 3) to show the calculation of each ratio for Microsoft Corporation, and the right-most column (column 4) to include your DETAILED comments about each ratio and what the ratio tells you about each company under study. Calculate each of the following six ratios. Earnings per Share Current Ratio, Gross Profit Rate, Profit Margin Ratio, Inventory Turnover Ratio, and Days in Inventory (Average Age of Inventory).

Part 2

Prepare a four-column worksheet in Excel, column 1 to write the ratio names, column 2 to show the calculation of each ratio for Oracle Corporation, column 3 to show the calculation of each ratio for Microsoft Corporation, and column 4 to include your DETAILED comments about each ratio and what the ratio tells you about each company under study. Calculate each of the following six ratios. Receivable Turnover Ratio, Average Collection Period, Assets Turnover Ratio, Return on Assets, Ratio Debt to Total Assets Ratio, and Times Interest Earned Ratio

Part 3

Prepare a four-column worksheet in Excel, column 1 to write the ratio names, column 2 to show the calculation of each ratio for Oracle Corporation, column 3 to show the calculation of each ratio for Microsoft Corporation, and column 4 to include your DETAILED comments about each ratio and what the ratio tells you about each company under study. Remember to copy and paste the ratio calculations and interpretations from the first two parts of the project in this worksheet, in addition to calculating the following six ratios. Payout ratio, Return on Common Stockholders’ Equity Ratio, Free Cash Flow Current, Cash Debt Coverage ratio, Cash Debt Coverage ratio, and Price/Earnings Ratio [For the purpose of this ratio, use the market price per share on June 1, 2007 for each company].

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Objective Type Costing Questions

Objective Type Costing Questions 

1. Which one of the following does not appear on the  balance sheet of a manufacturing company?

  • Raw materials inventory
  • Finished goods inventory
  • Work in process inventory
  • Cost of goods manufacture

2. Cost of goods manufactured is calculated as follows:

  • Beginning WIP + direct materials used + direct labor + manufacturing overhead + ending WIP.
  • Direct materials used + direct labor + manufacturing overhead – beginning WIP + ending WIP.
  • Beginning WIP + direct materials used + direct labor + manufacturing overhead – ending WIP.
  • Direct materials used + direct labor + manufacturing overhead – ending WIP – beginning WIP.

3. Which one of the following is an example of a period cost?

  • A change in benefits for the union workers who work in the New York plant of a Fortune 1000 manufacturer
  • Workers’ compensation insurance on factory workers’ wages allocated to the factory
  • A box cost associated with computers
  • A manager’s salary for work that is done in the corporate head office

Summary of MediSys Corp.: The IntensCare Product Development Team Summary

Write a one page summary of  HBR Brief case study ‘MediSys Corp.: The IntensCare Product Development Team’.

Please, also include the key points of this case study.

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Analysis of Financial Statements of Southwest Airlines Co.

Analysis of Financial Statements of Southwest Airlines Co. in $19 Only (Instant Download)

1) What 3 items of important information does the Southwest income statement reveal about the financial performance of the company over the last three years?
2) What 3 items of important information does the Southwest balance sheet reveal about the financial position of the company over the last two years?
3) Can you identify the major sources of funding for operating costs and capital expenditures used by Southwest Airlines from the information presented in the company’s annual report? If not, how could you get this information?
4) Who is responsible for: a) the issuance, and b) the content of the Southwest financial statements?
5) What assurance, if any, is there that the Southwest financial statements are in compliance with GAAP, and are free of material misstatements?
6) Of what use, if any, are the notes to the financial statements? Quantitative analysis tied to the financial statement concepts will add value to your work.
Sample Answer:
Question 2. What 3 items of important information does the Southwest balance sheet reveal about the financial position of the company over the last two years?

Answer:

Balance is another important statement of final account. It is also known as a report card of the corporation. It shows the position of the company at any particular date. The most three important information from the Southwest income statement are given below:

Improvement in current assets to current liabilities ratio

The company is able to improve its current ratio in last three years. In the year 2006 the current ratio was hovering around below one, however, it increased and touched 1.03 at the end of 2008.

Rising Debt

Debt to equity ratio increased from 0.26 in 2006 to 0.79 at the end of 2008. Debt to assets ratio also increased from 0.13 in 2006 to 0.27 at the end of 2008. In reflecting that in assets financing debt part in increasing faster than equity part.

Decrease in Total Equity

Total equity of the firm was decreased substantially in the year 2008 when it compares to 2007. In 2007 total equity was $6941 million, which fell to $4953 million by the end of 2008.

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Net Present Value (NPV) Calculations Using Each Model

 Net Present Value (NPV) Calculations Using Each Model

Need the Net Present Value (NPV) calculations each model using the following techniques and ignoring income Net Present Value (NPV) Calculations Using Each Modeltaxes: Dr. David Dunn, head of the radiology department at Grant Clinic Inc., is adding a new piece of diagnostic equipment to the department. Two similar models are offered by two different vendors, and both models would serve the needs of the clinic. Both also have an estimated useful life of five years, with no salvage value at the end of five years. The only difference between the two models is the cost and estimated annual labor savings, as shown below: Model A Model B Cost, including installation $120,000 $110,000 Estimated annual labor savings $40,000 $32,000 The straight-line method of depreciation is used on the books. Senior management of the clinic has established a target rate of return of 15% for all equipment with a useful life of over two years and a desired payback period of three years.

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Objective Type Questions

a) A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $120,000. The number of units the company must sell to break even is

  1. 60,000 units.
  2. 24,000 units.
  3. 240,000 units.
  4. 40,000 units.

b) A company has total fixed costs of $120,000 and a contribution margin ratio of 20%. The total sales necessary to break even are

  1. $480,000.
  2. $600,000.
  3. $150,000.
  4. $144,000.

c) At the break-even point of 2,500 units, variable costs are $55,000, and fixed costs are $32,000. How much is the selling price per unit?

  1. $34.80
  2. $9.20
  3. $12.80
  4. $22.00

Mini Case: Will Leasing Fly at Continental?

Continental Airlines

CFM 3 Ch 21 Minicase Will Leasing Fly at Continental? in $28 only

  1. Calculate the net advantage to leasing, using the expected residual value and assuming Continental can use all the tax benefits of ownership with a tax rate of 40% and straight line depreciation to the expected residual value. Assume that Continental issues 80% secured debt and 20% unsecured debt to finance a purchase.

a) Calculate rt–the project cost of capital.

b) Calculate the expected lease residual value per aircraft.

c) Calculate the quarterly CFAT per aircraft under the leasing option.

      • Hint: It should be the same each quarter hroughout the term of the lease.
      • The lease payment is tax deductible.
      • Under the leasing option Continental forgoes the depreciation tax deduction.

      d) Calculate the NAL.

          • Assume quarterly compounding to match the lease payments.
          • Continental’s required return on the asset—r, is given.
          • Assume no incremental difference in operating expenses between the purchasing and leasing options.
          • Assume that the lessor claims the ITC.

          2.  Calculate the net advantage to leasing, assuming Continental cannot use any of the tax benefits of ownership and the residual value is (i) the expected residual value, (ii) $50 million, and (iii) $10 million

          Mini Case: The Power to Cool Off in Florida (Indiantown Cogeneration Project)

          Tabebuia caraiba. Jensen Beach, Martin County,...

          CFM3 Ch 10 Minicase The Power to Cool Off in Florida             in $19 only

          Objective:
          This case demonstrates the use of NPV, IRR, and financial ratios for evaluating a capital budgeting project.
          Case Discussion:
          The Indiantown Cogeneration Project involved the construction and operation of a coal-fired plant in Martin County, Florida, that produces electricity and steam. The capital cost (including interest during construction) was approximately $770 million. Since completion, it has an electric generating capacity of 330 megawatts (net) and a steam capacity of 175,000 pounds per hour. The project sells the electric power to Florida Power & Light Company (FPL) under a 30-year contract and the steam to Caulkins Indiantown Citrus Company under a 15-year contract.

          FPL’s electricity payments have two parts: one for electric capacity and the other for the electric energy that it receives.

          The project’s financing consisted of $630 million of 30-year 9% APR interest rate debt and $140 million of equity. The debt requires equal annual sinking fund payments of $31.5 million beginning in year 11. Depreciation is straight line to zero over 20 years. The tax rate is 40%. Other information about the project includes:

          STRATEGIC INVESTMENT DECISIONS: Schweser Satellites Inc.

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          STRATEGIC INVESTMENT DECISIONS: Schweser Satellites Inc.

          Schweser Satellites Inc. Produces satellite earth stations that sell for $100,000 each. The firm’s fixed cost, F, are $2 million; 50 earth stations are produced and sold each year; profits total $500,000; and the firms assets (all equity financed) are $5million. The firm estimates that it can change its production process, adding $4million to investment and $500,000 to fixed operating costs. This change will (1) reduce variable costs per unit by $10,000 and (2) increase output by 20 units, but (3) sales price on all units will have to be lowered to $95,000 to permit sales of the additional output. The firm has tax loss carry forwards that cause its tax rate to be zero, its cost equity is 15 percent, and it uses no debt.

          1. Should the firm make the change?
          2. Would the firms operating leverage increase or decrease if it made the change? What about its breakeven point?
          3. Would the new situation expose the firm to more or less business risk than the old one?

          ANSWERS AVAILABLE.

          Price of Answer: Just US$ 3 only

          How to purchase this answer: Actually it is very simple. Just mail us at [email protected] or 

          [email protected] or [email protected] 

          Your work is over now, just sit back at your place in your comfort. Very soon you will receive our mail. So, why wait and pay more just mail us at [email protected] or [email protected] or [email protected].

          Need Assistance…??  email us at [email protected].

          If you need any help regarding Homework, Assignments, Projects, Case study, Essay writing or anything else then just email us at [email protected]solvemyquestion.com.

          Mini Case: Getting Off the Ground at Boeing

          CFM3 Ch 09 Mini Case:  Getting Off the Ground at Boeing in $9 only

          Objective:

          This case asks the student to calculate the incremental cash flows and use the NPV and IRR methods to evaluate Boeing’s investment project to build a new plane. This project, because of its size and importance to Boeing, was potentially a “make-or-break” investment for the firm. It was therefore critical to Boeing to “get it right” when it performed the capital budgeting analysis.

          Case Discussion:
          By the time Boeing announced the newest addition to its fleet, much of the preliminary work was already computed. The new plane was an enormous undertaking. Research and development, begun two and a half years earlier, would cost between $4 billion and $5 billion. Production facilities and personnel training would require an additional investment of $2.0 billion, and $1.7 billion in working capital would be required. The exhibit included in the case furnishes profit, depreciation, and capital expenditure projections for the project.

          Regression, Beta, Standard Dev, Correlation and other Calculation for S&P500

          Dow Jones Industrial Average (DJIA) vs. TEPIX ...

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          The assignment will be collected at the beginning of final exam. You should turn in the Excel
          workbook for this assignment with your report.
          1. Use http://finance.yahoo.com to obtain daily closing prices for your company. Use Excel to
          calculate daily returns for the period January 1, 2010 – December 31, 2010. Calculate,
          • Average daily return,
          • Standard deviation of returns.
          Repeat the analysis for the Dow Jones Industrial Average (DJIA). Ticker is ^DJI.
          Your report should contain,
          • Average daily return for your stock, yourstock R
          • Standard deviation of daily returns, yourstock σ
          • Average daily return for DJIA, DJIA R
          • Standard deviation of daily returns on the DJIA, DJIA σ .