Questions from Corporate Finance

Q: Define expected cash flows, and explain why this concept is important

Define expected cash flows, and explain why this concept is important in evaluating projects?

Q: Explain the concept of equivalent annual cost and how it is used

Explain the concept of equivalent annual cost and how it is used to compare projects with different lives?

Q: You are buying a sofa. You will pay $200 today

You are buying a sofa. You will pay $200 today and make three consecutive annual payments of $300 in the future. The real rate of return is 10 percent, and the expected inflation rate is 4 percent. Wh...

Q: Healthy Potions, Inc., is considering investing in a new production

Healthy Potions, Inc., is considering investing in a new production line for eye drops. Other than investing in the equipment, the company needs to increase its cash and cash equivalents by $10,000, i...

Q: Given the soaring price of gasoline, Ford is considering introducing a

Given the soaring price of gasoline, Ford is considering introducing a new production line of gas-electric hybrid sedans. The expected annual unit sales of the hybrid cars is 30,000; the price is $22,...

Q: Archer Daniels Midland Company is considering buying a new farm that it

Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12 million. This investment will consist of $2 mi...

Q: You are trying to choose between purchasing one of two machines for

You are trying to choose between purchasing one of two machines for a factory. Machine A costs $15,000 to purchase and has a three-year life. Machine B costs $17,700 to purchase but has a four year li...

Q: You are starting a family pizza parlor and need to buy a

You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $9,000 and is expected to run for 6 years; Model B is more expensive...

Q: When can we not simply compare the NPVs of two mutually exclusive

When can we not simply compare the NPVs of two mutually exclusive projects?

Q: Predator LLC, a leveraged-buyout specialist, recently bought a

Predator LLC, a leveraged-buyout specialist, recently bought a company and wants to determine the optimal time to sell it. The partner in charge of this investment has estimated the after-tax cash flo...