10 questions due in 1 1/2 our

In essence, capital budgeting is the process of:

 

Which of the following cash flows is an “incremental cash flow” for the purposes of capital budgeting?

 

In capital budgeting, the payback period is the:

 

The Seattle Corporation has been presented with an investment opportunity which will yield cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm’s cost of capital is 10 percent. At what point will the initial investment be paid back?

 

Consider the following income statement and answer the question that follows: Sales (100 units)…………..$200 Variable costs ($.20 ea)……20 Fixed Costs…………………..80 EBIT…………………………..100 Interest Expense…………….30 EBT……………………………70 Income tax…………………..24 Net Income…………………..46 What is the firm’s Breakeven Point in units?

 

The net present value of an investment is its present value minus its future value.

 

If the NPV of a proposed project is positive, the NPV amount represents:

 

Joe the cut-rate bond dealer has offered to sell you a ten year zero-coupon bond for $300. (Remember, zero-coupon bonds pay their owners $1,000 at maturity and involve no other cash flows other than the purchase price.) If your required rate of return for cut-rate bonds is 20%, what is the NPV of Joe’s deal?

 

When using the IRR method to evaluate investments, those with positive IRRs are accepted and those with negative IRRs are rejected.

 

You’ve decided to give up playing the stock market and buy some zero-coupon bonds from Joe the cut-rate bond dealer instead. (Remember, zero-coupon bonds because they pay off a known amount, $1,000, at maturity and involve no other cash flows other than the purchase price.) Assume your required rate of return is 12%. If you buy some 10-year zero coupon bonds for $400 each today will the bonds meet your return requirements?