420 Words2 Pages

Capital Budgeting Case
QBR/501
Capital Budgeting Case
Given two separate companies to compare I had to first crunch the numbers using the information on both companies that were proposed. The spending limit was $250,000 and I could not go over that amount. Corporation “A” had revenues equaling $100,000 in year one but increasing by 10% each year. It also had expenses of $20,000 and increasing by 15% each year. The depreciating expense is $5000 each year with a tax rate of 25% and discount rate of 10%. These numbers were crucial in finding the NPV (net present value) and IRR (internal rate of return).
Corporation “A” had a $100,000 operating revenue and I had to first figure out earnings before interest and tax so I could come out with taxes owed. By deducting cash expenses and depreciation I came up with the EBIT in which now I just multiplied by 25% tax rate. Now by deducting the EBIT I can figure out the net earnings and adding the depreciation back I got the C.F. OP. Now I had to figure out the discount rate and did all this for five years so I could show the NPV and IRR. All these same steps were done for Corporation “B” to find out which company is worth acquiring.
The net present value for company “A” was $29,425.85with a IRR of 6% while company “B” had a NPV of $12,656.03 with an IRR of 13%. Company “B” has a lower NPV than Company “A” but the internal rate of return is 13% to only 6% for company “A”. So if I’m reading this correctly I would choose Company “A” due to NPV is significant higher. The higher rate of return would be a factor also because company “B” stands to make more money in the long run but we want our return on investment quicker.
IRR is a percentage that will go with NPV most of the time but sometimes you get conflicting directions telling you to choose Company “A” over Company “B”. IRR can have two problem areas such as more than

Related

## Capital Budgeting Case

495 Words | 2 PagesCapital Budgeting Case Virginia Sacco University of Phoenix Quantitative Reasoning for Business QRB 501 Li Guohong March 10, 2014 Capital Budgeting Case My company is contemplating to acquire another corporation, “Corporation A” or “Corporation B” on a $250,000 budget. Corporation A: Revenues = $100,000 in year one, increasing by 10% each year. Expenses = $20,000 in year one, increasing by 15% each year/ Depreciation expense = $5,000 each year. Tax rate = 25%. Discount rate = 10%.

## Fin 515 Case Study Answers

545 Words | 3 PagesFI 515 Course Project a) The net cost of the spectrometer would include the original cost of the equipment, the modification costs and the increase in working capital due to having the equipment. Therefore, the net cost would be the $70,000 base costs, plus the $15,000 in modification costs and the $4,000 in capital, which equals $89,000. b) To find the operating cash flows for the three years, we have to find the cost savings after taxes and add the tax of depreciation. To find the cost savings, we have to take the $25,000 that is expected to be saved and reduce it based on a tax of 40%, or $25,000(1-.4), which equals $15,000. The tax on depreciation requires several steps to calculate.

## Fin 370 Final Exam Paper

1283 Words | 6 PagesYour firm is trying to determine its cash disbursements for the next two months (June and July). In any month, the firm makes purchases of 60% of that month’s sales, which are paid the following month. In addition, the firm incurs the following costs every month and pays for them in the month the expenses are incurred: wages and salaries of $10,000, rent of $4,000, and miscellaneous cash expenses of $1,000. Depreciation amortized on a monthly basis is $2,000. June’s sales are expected to be $100,000, and July’s sales are expected to be $150,000.

## Hanson Tax Service Business Plan Sample

2259 Words | 10 PagesThis equates to about 1700 people. Fees. Business will charge 5% of refunds up to $2500 and 10% of refunds over $2500. If there is no refund received, I will charge $40 per hour, with an average time of 2 hours per filing. Calculating Revenue.

## Tax Problems Ch 11 Solutions Manual

4814 Words | 20 PagesAgain, note that the actual state rate is reduced by 25% to allow for the deductibility of state income taxes on the federal income tax return. If Dana’s state tax rate increases to 10%, corporate bonds are still superior to Treasury bonds. 50. [LO 1] At the beginning of his current tax year David invests $12,000 in original issue U.S. Treasury bonds with a $10,000 face value that mature in exactly 10 years. David receives $700 in interest ($350 every six months) from the Treasury bonds during the current

## Law 421 Week 3 Written Assignment 1

518 Words | 3 Pages,Sarah L. G January 6, 2013 Written Assignment #1 1. A) $1,000 with 5% interest after 10 years gives you $1,628. Therefore, you would gain $628 in interest. B) If the interest is withdrawn each year, a total of $500 would be earned because the $1,000 investment would earn $50 of simple interest each year. C) The answers are different because if the interest is left untouched, it makes the principal amount higher each year, giving more money after 10 years.

## Str 581 Strategic Plan

3493 Words | 14 PagesWe estimated how many customers we need to breakeven each year. Cash flow Projection for five years Cash Flow Analysis Year 1 Beginning Balance $0 Capital $10,000 Revenue (10 Clients) 59,700 $66,700 Disposables Purchases 49,700 Administrative $7,400 (Advertising 200, Other costs 200, Airlines 1,000, Office 6000) Wages $4,000 (2,000 each for Benny and Janet) $61,100 Ending Balance $5,600 Year 2 Beginning Balance $5,600 Revenue (15 Clients) $89,550 $93,150

## Acc 561 Week 2 Accounting Research Paper

375 Words | 2 PagesAn= a8+ (n-1) d A8= 100+ (8-1)25 A8=100+7(25) A8=100+200 A8=300 Now that we know what A8 is, we need to know what the sum of the sequence is from A1 to A8. Sn= n (a1+a8) over2 S8= 8(100+300) over2 S8= 8(400) over2 S8= 4(400) = 1600 Thus, the cost to build a 90 foot CB tower is $1600. A person deposited $500 in a savings account that pays %5 annual interests that is compounded yearly. At the end of 10years, how much money will be in the savings account?

## Problems Essay

911 Words | 4 Pages1. Given the following information: Total assets $250,000 Debt (12% interest rate) $150,000 Equity $40,000 Variable costs of production $150 per unit Fixed cost of production $50,000 Units Sold 1,000 Sales price $210 per unit What happens to operating income and net income if output is increased by 10 percent? Verify your answer. Solution: The operating income: Revenues: $210 x (1,000) = $210,000 Expenses: $150 x (1,000) + $50,000 = $200,000 Operating income: $210,000 - 200,000 = $10,000 Net income: $10,000 - (.12 x 150,000) = ($8,000) With 10% increase in revenue: Revenues: $210 x (1,100) = 231,000 Expenses: $150 x (1,100) + $50,000 = $215,000 Operating income: $231,000 - $215,000 = $16,000 Net income $16,000 - (.12 x $150,000) = ($2,000) Operating income rose from $10,000 to $16,000 for a 60% increase. Net income rose from ($8,000) to ($2,000) which cut losses by $6,000.

## Finance Essay

2230 Words | 9 PagesFor $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $83.00 per share. If you bought a 100-share contract for $510.25 and Du Pont's stock price actually dropped to $63.00, you would make a. $1,950.00 b. $1,439.75 c. $1,489.75 d. $2,000.00 e. $2,435.00 4. On its 2008 balance sheet, Sherman Books showed a balance of retained earnings equal to $510 million.

### Capital Budgeting Case

495 Words | 2 Pages### Fin 515 Case Study Answers

545 Words | 3 Pages### Fin 370 Final Exam Paper

1283 Words | 6 Pages### Hanson Tax Service Business Plan Sample

2259 Words | 10 Pages### Tax Problems Ch 11 Solutions Manual

4814 Words | 20 Pages### Law 421 Week 3 Written Assignment 1

518 Words | 3 Pages### Str 581 Strategic Plan

3493 Words | 14 Pages### Acc 561 Week 2 Accounting Research Paper

375 Words | 2 Pages### Problems Essay

911 Words | 4 Pages### Finance Essay

2230 Words | 9 Pages