Corporate Finance: The Core (Berk/DeMarzo) Chapter 7 - Fundamentals of Capital Budgeting 1) Which of the following statements is false? A) Because value is lost when a resource is used by another project‚ we should include the opportunity cost as an incremental cost of the project. B) Sunk costs are incremental with respect to the current decision regarding the project and should be included in its analysis. C) Overhead expenses are associated with activities that are not directly attributable to a single business
Premium Balance sheet Generally Accepted Accounting Principles Finance
ABSTRACT This report describes capital budgeting techniques such as NPV (The NPV of an investment is the difference between its market value and its cost‚ IRR (The IRR is the discount rate that makes the estimated NPV of an investment equal to zero. PAYBACK (The payback period is the length of time until the sum of an investment’s cash flows equals its cost)‚ discounted payback period (The discounted payback period is the length of time until the sum of an investment’s discounted cash flows equals
Premium Net present value Capital budgeting
TIME VALUE OF MONEY Time value of money refers to an individual preference of a given amount of cash now rather than the same amount at some future time. The reasons why an individual would prefer cash now: i) Subjective preference for present consumption – one may prefer present consumption over future consumption of goods and services because of the urgency of present wants or the risk of not being in a position to enjoy future consumption. ii) Availability of investment opportunities –
Premium Time value of money Time Net present value
Review of Capital Budgeting 1. The Kramer Tool Company has a photocopying machine that it purchased two years ago for $70‚000. The machine is being depreciated straight line over 5 years to a zero salvage value. A competing firm is offering a new photocopying machine that cost $60‚000 and can be depreciated over 5 years to a zero salvage value. Kramer has been assured that the new machine can be sold for $10‚000 after five years. The new machine requires less maintenance and operator attendance
Premium Net present value Costs Investment
CHAPTER 4 PART II: VALUATION AND CAPITAL BUDGETING Discounted Cash Flow Valuation The signing of big-name athletes is often accompanied by great fanfare‚ but the numbers are often misleading. For example‚ in late 2010‚ catcher Victor Martinez reached a deal with the Detroit Tigers‚ signing a contract with a reported value of $50 million. Not bad‚ especially for someone who makes a living using the “tools of ignorance” (jock jargon for a catcher’s equipment). Another example is the contract signed
Free Compound interest Time value of money Net present value
CAPITAL BUDGETING PROBLEM BMW Bike is considering building a new plant. Juan Optimist‚ the company’s marketing manager‚ is an enthusiastic supporter of the new plant. Mila Pessimist‚ the company’s chief financial officer‚ is not so sure that the plant is a good idea. Currently the company purchases its skateboards from foreign manufacturers. The following figures were estimated regarding the construction of a new plant. Cost of plant 4‚000‚000 Annual cash inflows 4‚000‚000 Annual cash
Premium Net present value Investment Time value of money
A SURVEY OF CAPITAL BUDGETING PRACTICES IN CORPORATE INDIA Satish Verma‚ Sanjeev Gupta and Roopali Batra The present study aims to unveil the status of capital budgeting in India particularly after the advent of full-fledged globalisation and in the era of cutthroat competition‚ where companies are being exposed to various degrees of risk. For the above objective a comprehensive primary survey was conducted of 30 CFOs/CEOs of manufacturing companies in India‚ so as to find out which capital
Premium Net present value Capital budgeting
The Society for Financial Studies Decision Processes‚ Agency Problems‚ and Information: An Economic Analysis of Capital Budgeting Procedures Author(s): Anthony M. Marino and John G. Matsusaka Source: The Review of Financial Studies‚ Vol. 18‚ No. 1 (Spring‚ 2005)‚ pp. 301-325 Published by: Oxford University Press. Sponsor: The Society for Financial Studies. Stable URL: http://www.jstor.org/stable/3598074 . Accessed: 15/11/2013 17:17 Your use of the JSTOR archive indicates your acceptance
Premium Decision making Decision theory Risk
Capital Budgeting Essay (Derived from Chapter 17: Long-Term Investment Analysis) Title: The Lorie-Savage Problem BUS 505 – Multinational Economics of Technology Table of Contents 1.0 Introduction – Lorie-Savage Problem 3 1.1 Thesis Statement 3 2.0 Supporting Research 4 3.0 Conclusions and Recommendations 6 References 7 1.0 Introduction – Lorie-Savage Problem The Lorie-Savage problem is a problem introduced in 1955 that addresses the issue in how to allocate capital (or resources)
Premium Net present value Operations research Capital budgeting
Question 1: 2D1-LS02 Which of the following items is not an example of a capital expenditure? A ventilation system upgrade for EPA compliance. Project bonuses paid to employees. Purchase of a new assembly machine that will cut labor and maintenance costs. Purchase of a new computer server for the research and development group. Long-term capital budget expenditures are often grouped in one of the following categories: new machines and equipment intended for expansion‚ replacement of existing
Premium Net present value Depreciation Capital budgeting