Questions from Financial Management

Q: Why is the NPV of a relatively long-term project (

Why is the NPV of a relatively long-term project (one for which a high percentage of its cash flows occurs in the distant future) more sensitive to changes in the WACC than that of a short-term projec...

Q: Kennedy Air Services is now in the final year of a project

Kennedy Air Services is now in the final year of a project. The equipment originally cost $20 million, of which 80% has been depreciated. Kennedy can sell the used equipment today for $5 million, and...

Q: Huang Industries is considering a proposed project who’s estimated NPV is $

Huang Industries is considering a proposed project who’s estimated NPV is $12 million. This estimate assumes that economic conditions will be “average.â€...

Q: Operating cash flows rather than accounting income are listed in Table 12

Operating cash flows rather than accounting income are listed in Table 12-1. Why do we focus on cash flows as opposed to net income in capital budgeting?

Q: Why are interest charges not deducted when a project’s cash flows for

Why are interest charges not deducted when a project’s cash flows for use in a capital budgeting analysis are calculated?

Q: Carter Corporation’s sales are expected to increase from $5 million in

Carter Corporation’s sales are expected to increase from $5 million in 2008 to $6 million in 2009, or by 20%. Its assets totaled $3 million at the end of 2008. Carter is at full capacity, so its asset...

Q: Jasper Furnishings has $300 million in sales. The company expects

Jasper Furnishings has $300 million in sales. The company expects that its sales will increase 12% this year. Jasper’s CFO uses a simple linear regression to forecast the company’s inventory level for...

Q: Edwards Industries has $320 million in sales. The company expects

Edwards Industries has $320 million in sales. The company expects that its sales will increase 12% this year. Edwards’ CFO uses a simple linear regression to forecast the company’s receivables level f...

Q: Charlie’s Cycles Inc. has $110 million in sales. The

Charlie’s Cycles Inc. has $110 million in sales. The company expects that its sales will increase 5% this year. Charlie’s CFO uses a simple linear regression to forecast the company’s inventory level...

Q: Assume that an average firm in the office supply business has a

Assume that an average firm in the office supply business has a 6% profit margin, a 40% debt/assets ratio, a total assets turnover of 2 times, and a dividend payout ratio of 40%. Is it true that if su...