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Principles of finance Assignment




Question;Setion A;Part A;1.;a. Describe an incremental cash flow for a;project.;b.;Describe three (3);concepts we need to examine to help understand how to estimate the incremental;cash flow of a project.;2.;Benson Co. purchases an;asset for $6,000. This asset qualifies as a seven-year recovery asset under;MACRS. Benson has a tax rate of 30%. The seven-year expense percentages for;years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and;8.93%, respectively. If the asset is sold at the end of six years for $2,000;what is the cash flow from disposal? Show your work.;Part B;1.;Briefly describe JIT;inventory management.;2.;Describe one (1) type of;cost that is minimized with JIT control.;3.;In order to use JIT, is;it better to have high ordering costs or low? Provide one (1) supporting fact;to justify your answer.;Part C;You are CEO of Acme;Inc. located in the United States. You use the discounted payback period method;and accept all projects that payback in three years. You are considering a;project that will cost $5,500,000 and will produce one cash flow that occurs in;three years. However, the cash flow is in pesos since the project is an;overseas project. The current indirect exchange rate is 13.5 pesos per dollar.;The cash inflow in pesos is 100,000,000 in three years, and the discount rate;is 11.5%. During this time, the anticipated annual inflation rate is 5% in the;United States and 4% in Mexico.;Should you accept this;project, using the discounted payback period method? Is this a good decision?;Provide the six (6) steps you would utilize to determine whether or not this is;a good decision.;Section B;Part;A;Consider;the information below from a firm's balance sheet for 2011 and 2012.;Current Assets 2012 2011 Change;Cash and;Equivalents $1,561 $1,800 -$ 239;Short-Term;Investments$1,052 $3,010 -$1,958;Accounts;Receivable $3,616 $3,129 $ 487;Inventories $1,816 $1,543 $ 273;Other Current;Assets $ 707 $ 601 $ 106;Total Current;Assets $8,752 $10,083 -$1,331;Current;Liabilities;Accounts;Payable $5,173 $5,111 $ 62;Short-Term Debt $ 288 $ 277 $;11;Other Current;Liabilities$1,401 $1,098 $ 303;Total Current;Liabilities$6,862 $6,486 $ 376;1. What is the Net;Working Capital for 2012?;2. What is it for;2011?;3. What is the;Change in Net Working Capital (NWC)?;4. Assuming the;Operating Cash Flows (OCF) are $7,155 and the Net Capital Spending (NCS) is;$2,372, what is the Cash Flow from Assets?;Part;B;Assume that you are 23 years old and that you;place $3,000 year-end deposits each year into a stock index fund that earns an;average of 9.5% per year for the next 17 years.;1.;How much money will be in the account;at the end of 17 years?;2.;How much money will you have in the;account 15 years later at age 55 if the account continues to earn 9.5% per year;but you discontinued making new contributions?;3.;How much money would you have at the;end of 17 years if you had made the same number of deposits but at the;beginning of the year instead of at the end of the year?;4.;How much money will you have in the;account 15 years later at age 55 if the account continues to earn 9.5% per year;but you discontinued making new contributions?;Part;C;1.;a.;What is the possible range for a correlation coefficient?;b.;For purposes of diversification, what;type of correlation coefficient among asset returns is preferred by investors?;Provide a brief explanation.;2.;a.;Describe the two (2) investment rules identified in the text.;b.;Explain the validity of the following;statement and provide one (1) supporting fact to justify your reasoning.;Investors do not like risk and will always choose the investment with the;least risk.


Paper#52996 | Written in 18-Jul-2015

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