Questions from Managerial Finance

Q: Your broker calls to offer you the investment opportunity of a lifetime

Your broker calls to offer you the investment opportunity of a lifetime, the chance to invest in mortgage-backed securities. The broker explains that these securities are entitled to the principal and...

Q: What is the decision rule that managers follow when they use the

What is the decision rule that managers follow when they use the IRR method to accept or reject investment proposals? How is that decision rule related to the firm’s market value?

Q: Why is it important to evaluate capital budgeting projects on the basis

Why is it important to evaluate capital budgeting projects on the basis of incremental cash flows?

Q: How are the net operating cash flows that are associated with a

How are the net operating cash flows that are associated with a replacement decision calculated?

Q: Explain how the terminal cash flow is calculated for replacement projects.

Explain how the terminal cash flow is calculated for replacement projects.

Q: Diagram and describe the three types of net cash flows for a

Diagram and describe the three types of net cash flows for a capital budgeting project.

Q: Does the assumption concerning the reinvestment of intermediate cash inflow tend to

Does the assumption concerning the reinvestment of intermediate cash inflow tend to favor NPV or IRR? In practice, which technique is preferred and why?

Q: What three types of net cash flows may exist for a given

What three types of net cash flows may exist for a given project? How can expansion decisions be treated as replacement decisions? Explain

Q: What effect do sunk costs and opportunity costs have on a project’s

What effect do sunk costs and opportunity costs have on a project’s net cash flows?

Q: Explain how to use each of the following inputs to calculate the

Explain how to use each of the following inputs to calculate the initial investment: (a) cost of the new asset, (b) installation costs, (c) proceeds from the sale of the old asset, (d) tax on the sale...