Questions from Financial Management

Q: You must evaluate a proposed spectrometer for the R&D Department

You must evaluate a proposed spectrometer for the R&D Department. The base price is $140,000, and it would cost another $30,000 to modify the equipment for special use by the firm. The equipment falls...

Q: You must evaluate a proposal to buy a new milling machine.

You must evaluate a proposal to buy a new milling machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and...

Q: In late 1980, the U.S. Commerce Department released

In late 1980, the U.S. Commerce Department released new data showing inflation was 15%. At the time, the prime rate of interest was 21%, a record high. However, many investors expected the new Reagan...

Q: The Dauten Toy Corporation uses an injection molding machine that was purchased

The Dauten Toy Corporation uses an injection molding machine that was purchased 2 years ago. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining life. Its curre...

Q: Mississippi River Shipyards is considering replacing an 8-year-old

Mississippi River Shipyards is considering replacing an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $54,000 per year. The new machine wil...

Q: The Butler-Perkins Company (BPC) must decide between two

The Butler-Perkins Company (BPC) must decide between two mutually exclusive projects. Each costs $6,750 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial in...

Q: Distinguish among beta (or market) risk, within-

Distinguish among beta (or market) risk, within-firm (or corporate) risk, and stand-alone risk for a project being considered for inclusion in a firm’s capital budget.

Q: In theory, market risk should be the only “relevant”

In theory, market risk should be the only “relevant” risk. However, companies focus as much on stand-alone risk as on market risk. What are the reasons for the focus on stand-alone risk?

Q: Define (a) Sensitivity analysis, (b)

Define (a) Sensitivity analysis, (b) Scenario analysis, and (c) Simulation analysis. If GE was considering two projects (one for $500 million to develop a satellite communications system and the ot...

Q: If you were the CFO of a company that had to decide

If you were the CFO of a company that had to decide on hundreds of potential projects every year, would you want to use sensitivity analysis and scenario analysis as described in the chapter or would...