Weighting Net Present Value and Other Capital Budgeting Criteria, accounting homework help

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FhtneOebja

Business Finance

Description

Need serious, but honest help to meet my dead line.  Instruction as following questions using grammatically correct language and appropriate APA citations. All questions need to be answer and with APA citations. All material MUST come from the book only. (The book that used is Finance by Cornett, Adair, & Nofsinger, 2016).  Chapter 13 Weighting Net Present Value and Other Capital Budgeting Criteria, Pages 310-335.  Be sure when solving the problems algebraically, be sure to show your computations.  If using Excel spreadsheet, show your input values and formula.  If using financial calculator, show your input values. There are TWO hints/suggestions for certain questions in this assignment to ensure you have the right answer. 

**Note: In addition to your solution to each computational problem, you must show the supporting work leading to your solute.****

Question 1

Proficient-level: Describe the Net Present Value (NPV) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using NPV?

Distinguished-level: Identify the NPV method's strengths and weaknesses.

Question 2

Proficient-level: What is the payback period statistic? What is the acceptance benchmark when using the payback period statistic?

Distinguished-level: Identify what problem of the Payback Period method is corrected by using the Discounted Payback Period method.

Question 3

Proficient-level: Describe the Internal Rate of Return (IRR) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using IRR?

Distinguished-level: Explain how the NPV and IRR methods are similar and how they are different.

Question 4

Proficient-level: Describe the Modified Internal Rate of Return (MIRR) method for determining a capital budgeting project's desirability. What are MIRR's strengths and weaknesses?

Distinguished-level: Explain the differences in the reinvestment rate assumption that distinguishes MIRR from IRR.

Question 5 HINT-The correct NPV statistic for Project Y falls within the range of -$1,000 and +$1,999. Do not forget to advise whether this project should be accepted or rejected. (Reminder: you are also required to identify the known variables in order to obtain the correct response to this, and in all, quantitative problems.)

Proficient-level: Compute the NPV statistic for Project Y and tell [advise] whether the firm should accept or reject the project with the cash flows shown in the chart if the appropriate cost of capital is 12 percent.

Distinguished-level: Explain how decreases in the cost of capital lead to an increase in the number of approved projects.  Show solving problem

Project Y

Time

0

1

2

3

4

Cash Flow

-$8,000

$3,350

$4,180

$1,520

$300

(Cornett, Adair, & Nofsinger, 2016, p. 332).

Question 6 HINT-To calculate a payback period, one must take the set of given cash flows and construct and analyze a listing of CUMULATIVE cash flows. A good example is reviewed in the M:Finance, 3rd edition text in Table 13.2, page 315. [VERY IMPORTANT POINT: There is a typo in some editions in the text's example problem, as the Year 2 cash flow listed as -3,500 is actually a POSITIVE 3,500. So, treat the second year's cash flow in the example as POSITIVE 3,500. All other numbers in the Table are correct.] Use this text example as a guide in solving this assignment problem. The correct Payback Period statistic for Project A falls within the range of 2.0 years and 5.5 years. Do not forget to advise whether this project should be accepted or rejected. (reminder: show your work.)

Proficient-level: Compute the payback period statistic for Project A and recommend whether the firm should accept or reject the project with the cash flows shown in the chart if the maximum allowable payback is four years.

Distinguished-level: If the discounted payback period were computed, identify if it would be less than, equal to, or greater than the non-discounted payback period.  Show solving problem

Project A

Time

0

1

2

3

4

5

Cash Flow

-$1,000

$350

$480

$520

$300

$100

(Cornett, Adair, & Nofsinger, 2016).

Question 7

Chapter 13 in the M: Finance textbook by Cornett, Adair, and Nofsinger discusses various criteria for calculating and analyzing the desirability of a capital budgeting project. This task is extremely important as these projects often entail very large cash outflows and may significantly determine the future profitability of the firm. Examine Chapter 13, with particular emphasis on each of the six capital budgeting techniques reviewed. Assume the role of chief financial executive of a firm that is analyzing a major project that entails a large initial cash outflow at time point zero and has future expected cash inflows occurring over the next 10-year period.

-If you could select only three techniques to analyze this project's desirability, which three techniques would you select? Why?

-When analyzing a project's desirability, which factor do you believe is more important: the technique to analyze investment acceptability, or the use of the most accurate projections of cash flows? Why?


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Explanation & Answer

Here you go.....

Capital Budgeting

1

Name
Capital Budgeting
Course
Instructor
Date

Capital Budgeting

2

Question 1
Proficient-level: Describe the Net Present Value (NPV) method for determining a capital
budgeting project's desirability. What is the acceptance benchmark when using NPV?
By computing the difference between the present value of a project’s inflows and
outflows, the NPV method measures the expected increase form taking on the project. Since the
NPV is a sum of all present values of cash flows in and out for the project, any NPV equal to or
greater than zero means the project should be accepted. An NPV of less than zero means the
project should be rejected. This is the simple benchmark for acceptance. The NPV method for
determining a capital budgeting project’s desirability works well for both independent projects
and for selecting from mutually exclusive projects. This is because the statistic is dollars and not
a ratio. However, this strength of the NPV method is also it’s weakness. Because the statistic is
in dollar format, managers may inaccurately measure this against the cost of the project,
misunderstanding that the cost of the project is already included in the statistic (Cornett,Adair, &
Nofsinger, 2016)
Distinguished-level: Identify the NPV method's strengths and weaknesses.
Strengths of NPV


Recognizes the concept of the time value of money



Gives a decision rule for either acceptance or rejection



Uses cash flows of the project and not accounting profits



It is consisted with the maximization principle



It is consisted with value addition

Weaknesses of NPV


Requires the estimation of future cash flows

Capital Budgeting


3

It is very sensitive to discount rates

Question 2
Proficient-level: What is the payback period statistic? What is the acceptance benchmark
when using the payback period statistic?
Assuming that the cash flows are normal and all of the outflows for a project happen at
the beginning of a project’s life, the payback period statistic is the recovery period to the point
that the initial outflows or investment, are exactly offset by the inflows. One additional
assumption that must be made is that the cash inflows will come in smoothly over the period,
thus allowing the months and days to recoup of the initial outflow to be counted. The benchmark
for acceptance of a project using the payback statistic of measurement is if t...


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