Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 11, Problem 11.10P
a)
Summary Introduction
To determine:
Determining the change in current assets, liabilities and Net working Capital of the firm by the new option.
Introduction:
The capital budgeting is the process of making huge investments by the firms to make their capital assets grow faster such as the building of new buildings, purchase of advanced costly machineries etc.
b)
Summary Introduction
To determine:
Why the current accounts are relevant in determining the initial investment of the proposed investment project.
c)
Summary Introduction
To determine: Whether the change in net working capital enter into any other cash flow that make up the Project's net cash flows.
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Peng Company is considering an investment expected to generate an average net income after taxes of $1,950 for three
years. The investment costs $45,000 and has an estimated $6,000 salvage value.
Compute the accounting rate of return for this investment; assume the company uses straight-line depreciation.
Choose Numerator:
1
1
Accounting Rate of Return
Choose Denominator:
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O
Differential Analysis Involving Opportunity Costs
On August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternative
company could use the funds to invest in $1,000,000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face
The following data have been assembled:
Cost of store equipment
$1,000,000
Life of store equipment
15 years
Estimated residual value of store equipment
$50,000
Yearly costs to operate the store, excluding
depreciation of store equipment
$200,000
Yearly expected revenues-years 1-6
$300,000
Yearly expected revenues-years 7-15
$400,000
Required:
1. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with
investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0".
Differential Analysis
Operate Retail (Alt. 1) or Invest in Bonds (Alt. 2)
August 1
Invest…
Differential Analysis Involving Opportunity CostsOn July 1, Coastal Distribution Company is considering leasing a building and buying the necessaryequipment to operate a public warehouse. Alternatively, the company could use the funds to invest in$740,000 of 5% U.S. Treasury bonds that mature in 14 years. The bonds could be purchased at face value.The following data have been assembled:Cost of store equipment $740,000Life of store equipment 14 yearsEstimated residual value of store equipment $75,000Yearly costs to operate the warehouse, excludingdepreciation of store equipment $175,000Yearly expected revenues—years 1-7 $280,000Yearly expected revenues—years 8-14 $240,000Required:1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the14 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount iszero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a…
Chapter 11 Solutions
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Ch. 11.1 - Prob. 11.1RQCh. 11.1 - What three types of net cash flows may exist for a...Ch. 11.1 - Prob. 11.3RQCh. 11.1 - Prob. 11.4RQCh. 11.2 - Explain how to use each of the following inputs to...Ch. 11.2 - How do you calculate the book value of an asset?Ch. 11.2 - Prob. 11.7RQCh. 11.2 - Prob. 11.8RQCh. 11.3 - Prob. 11.9RQCh. 11.3 - Prob. 11.10RQ
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