Investment projects should never be selected through purely mechanical processes. Managers should ask questions about the positive net present value (NPV). Good managers realize that the forecasts behind NPV calculations are imperfect. Therefore, they explore the consequences of a poor forecast and check whether it is worth doing more homework. They use several different tools and analysis techniques to answer their “what-if” questions.
In addition, managers should consider the types of bias, both unintentional and intentional, that may enter into the capital budgeting analysis. As part of this assignment, you will examine the potential motivation for unethical behavior by executives that may take place in the capital budgeting process and explain how biasing cash-flow estimates can work to the advantage of the executive who intentionally inserts such bias.
Assume that you are employed by a wood milling company that is evaluating the desirability of adding a new product to their product mix. The product would require the addition of new and different CNC (computer numerical control) milling equipment. Your boss has asked you to analyze a project proposal and recommend whether the project should be accepted or rejected. The most likely project estimates are:
- Unit selling price = $50
- Unit variable cost = $30
- Total fixed costs including depreciation = $300,000
- Expected sales = 30,000 units per year
The projects will last for 10 years and will require an initial investment of $1 million, which will be depreciated straight-line over the project life to a final value of zero. The firm’s tax rate is 35% and the required rate of return is 12%.
Your boss recognizes that some of these estimates are subject to error and wants to better understand the risks associated with the project and alternatives for dealing with those risks. You have been asked to include a sensitivity analysis in your report. You are also to explain how changing the discount rate might be helpful.
Your boss has heard about cash flow estimates being biased for personal gain at the company’s expense in another firm and would like to better understand that potential problem. You have been asked to address that in your report.
The team developing the proposal estimated that variable cost and sales volume may each turn out to be as much as 10% higher or 10% lower than the initial estimate. To complete this assignment, you are to submit a four to five page paper that includes the following:
Using MS Excel:
- Calculate the project’s NPV for the most likely results.
- Calculate the project’s NPV for the best-case scenario.
- Calculate the project’s NPV for the worst-case scenario.
- Calculate the project IRR for the most likely results.
You will transfer your calculations into your final report. In a 4-5 page paper in MS Word:
- Exhibit your Excel function entries and results, or your calculations using present value tables, for each of your NPV and IRR calculations (A-D) and provide an explanation of all calculations
- Explain your recommendation regarding whether the project should be accepted and a justification of your response.
- Provide an explanation of how adjusting the discount rate in the basic NPV model of capital budgeting deals with the problem of project risk.
- Examine the potential motivation for unethical behavior by executives that may take place in the capital budgeting process and explain how biasing cash-flow estimates can work to the advantage of the executive who intentionally inserts such bias.
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Investment Analysis Fina 350 Assignment 1 1 What Macroeconomic And Microeconomic
/in Uncategorized /by developerINVESTMENT ANALYSIS (FINA 350)ASSIGNMENT-11. What macroeconomic and microeconomic factors contribute to changes in the required rate of return for individual investments and investments in general? Explain each of them.2. Explain the purpose and function of a capital market?3. Explain in detail the characteristics that determine the quality of a capital market?4. What is the difference between a primary and secondary capital market and how do these markets support each other? Explain in detail.5. Explain the specific factors that contribute to an efficient market?6. Given the overall efficient market hypothesis, what are the three sub-hypotheses and what are the implications of each? Explain.7. What specific ratios help determine a firm’s internal liquidity, operating performance, risk profile, growth potential, and external liquidity? Explain each with example.8. How can the DuPont analysis help evaluate a firm’s return on equity over time? Explain.Text Book:Investment Analysis and Portfolio Management Seventh Edition by Frank K. Reilly & Keith C. BrownINVESTMENT ANALYSIS (FINA 350)ASSIGNMENT-21. What do we mean by risk aversion and what evidence indicates that investors are generally risk averse? Explain in detail.2. Explain the basic assumptions behind the Markowitz portfolio theory?3. What is meant by risk and what are some of the alternative measures of risk used in investments?4. What are the main assumptions of the capital asset pricing model? Explain each assumption.5. What is a risk-free asset and what are its risk-return characteristics?6. Define portfolio management. How do we measure diversification for an individual portfolio?7. What is systematic and unsystematic risk? How they affect the business? Explain.8. How does the goal of a passive equity portfolio manager differ from the goal of an active manager? Explain.TEXT BOOK:Investment Analysis and Portfolio Management Seventh Edition by Frank K. Reilly & Keith C. Brown
QINVESTMENT ANALYSIS (FINA 350)ASSIGNMENT-11. What macroeconomic and microeconomic factors contribute to changes in the required rate ofreturn for individual investments and investments in…
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Investment Funding Proposal Kim Wood
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Investment In Amenities And Impact Considers Two Cities A B Which Start With The
/in Uncategorized /by developerInvestment in Amenities and Impact Considers two cities (A, B) which start with the same indifference and iso-profit curves and are in equilibrium. City A decides to invest heavily in cultural facilities which consumers value highly. What is likely to be the expected impact on relative rents and wages between the two cities in each of following circumstances? a) These cultural facilities are funded from an increase in taxes on businesses which receive no benefit. b) These cultural facilities are funded from an increase in taxes on households. Households are still better off. Businesses are unaffected. c) These cultural facilities are funded from an increase in taxes on households. Households are still better off. However, businesses also receive a benefit.
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Investment In Associate With Significant Influence
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In early January 2017, Julius Inc., a private enterprise that applies ASPE, purchased 40% of the common shares of Kapital Corp. for $484,000. Janus was now able to exercise considerable influence in decisions made by Kaptial’s management. Kaptial Corp.’s statement of financial position reported the following information at the date of acquisition:
Assets not subject to being amortized $242,000 Assets subject to amortization (10 years average life remaining) 732,000 Liabilities 136,000
Additional information: 1. Both the carrying amount and fair value are the same for assets that are not subject to amortization and for the liabilities. 2. The fair value of the assets subject to amortization is $885,000. 3. The company amortizes its capital assets on a straight-line basis. 4. Kaptial reported net income of $192,000 and declared and paid dividends of $132000 in 2017.
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Investment Projects Should Never Be Selected Through Purely Mechanical Processes
/in Uncategorized /by developerInvestment projects should never be selected through purely mechanical processes. Managers should ask questions about the positive net present value (NPV). Good managers realize that the forecasts behind NPV calculations are imperfect. Therefore, they explore the consequences of a poor forecast and check whether it is worth doing more homework. They use several different tools and analysis techniques to answer their “what-if” questions.
In addition, managers should consider the types of bias, both unintentional and intentional, that may enter into the capital budgeting analysis. As part of this assignment, you will examine the potential motivation for unethical behavior by executives that may take place in the capital budgeting process and explain how biasing cash-flow estimates can work to the advantage of the executive who intentionally inserts such bias.
Assume that you are employed by a wood milling company that is evaluating the desirability of adding a new product to their product mix. The product would require the addition of new and different CNC (computer numerical control) milling equipment. Your boss has asked you to analyze a project proposal and recommend whether the project should be accepted or rejected. The most likely project estimates are:
The projects will last for 10 years and will require an initial investment of $1 million, which will be depreciated straight-line over the project life to a final value of zero. The firm’s tax rate is 35% and the required rate of return is 12%.
Your boss recognizes that some of these estimates are subject to error and wants to better understand the risks associated with the project and alternatives for dealing with those risks. You have been asked to include a sensitivity analysis in your report. You are also to explain how changing the discount rate might be helpful.
Your boss has heard about cash flow estimates being biased for personal gain at the company’s expense in another firm and would like to better understand that potential problem. You have been asked to address that in your report.
The team developing the proposal estimated that variable cost and sales volume may each turn out to be as much as 10% higher or 10% lower than the initial estimate. To complete this assignment, you are to submit a four to five page paper that includes the following:
Using MS Excel:
You will transfer your calculations into your final report. In a 4-5 page paper in MS Word:
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