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BUSN 5200 Week 8 Homework Assignment




For Week 8, please turn in the answers to the following questions;1. List the three steps that make up the general approach to capital budgeting.;2. Define an Incremental cash flow as the term is used in capital budgeting;3. Your firm is considering buying a new machine that costs $200,000, is expected to;generate $110,000 in new revenue each year and will cost $45,000 a year to operate.;If your firm's marginal income tax rate is 35% what is the Net Cash Flow your firm;will realize from the new machine during the first year? Assume the MACRS;depreciation rate for the machine for year 1 is 20%. Note - do not include the cost of;the machine in your answer.;4. Define the payback period method in capital budgeting and state the payback period;decision rule.;5. What is the payback period of the following project?;Initial Investment;$50,000;Projected life;8 years;Net cash flows each year: $10,000;6. Consider the following income statement and answer the questions that follow;Sales (100 units);$200;Variable costs ($.80 ea) 80;Fixed Costs;20;EBIT;100;Interest Expense;30;EBT;70;Income tax;24;Net Income;46;a. What is the firms Breakeven Point in units?;b. Draw a breakeven chart for this firm.;7. Define the Net present Value (NPV) method in capital budgeting and state the NPV;decision rule. In economic terms, what does the NPV amount represent?;8. Your firm is looking at a new investment opportunity, Project Alpha, with net cash;flows as follows;---- Net Cash Flows ---Project Alpha;Initial Cost at T-0 (Now);cash inflow at the end of year 1;cash inflow at the end of year 2;cash inflow at the end of year 3;($10,000);6,000;4,000;2,000;Calculate project Alpha's Net Present Value (NPV), assuming your firms required;rate of return is 10%.;9. Define the Internal Rate of Return (IRR) method in capital budgeting and state the;IRR Decision rule.;10. Calculate the IRR of the following project;Year;0;1;Cash Flow;-$30,000;$40,000;Case Study Tasks;1. Refer to the Case Study topic lecture on the Week 7 Content page. Using that;information as a guide, complete the Summary and Conclusion section of your report.;Then review your entire report, polishing it for final submission as required. At the;end of the week submit your final, formal report along with your regular homework;(use a separate file for the report).


Paper#19475 | Written in 18-Jul-2015

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