Project #77690 - Financial Management

 

Indicate whether the following statements are true or false. 

 

  

 

a.

The approval of a capital budget allows managers to go ahead with any project included in the budget.

 

 

 

True

False

 

  

 

b.

Capital budgets and project authorizations are mostly developed “bottom up.” Strategic planning is a “top-down” process.

 

 

 

True

False

 

  

 

c.

Project sponsors are likely to be overoptimistic.

 

 

 

True

 

Otobai Company in Osaka, Japan is considering the introduction of an electrically powered motor scooter for city use. The scooter project requires an initial investment of ¥15 billion. The cost of capital is 10%. The initial investment can be depreciated on a straight-line basis over the 10-year period, and profits are taxed at a rate of 50%.

 

   

 

Consider the following estimates for the scooter project.

 

   

 

 

 

  Market size

 

 

1.1

 million

 

  Market share

 

 

0.1

 

 

  Unit price

 

¥

400,000.0

 

 

  Unit variable cost

 

¥

360,000.0

 

 

  Fixed cost

 

¥

2.0

 billion

 


 

   

 

What is the NPV of the electric scooter project? (Negative amount should be indicated by a minus sign. Enter your answer in billions. Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

   

 

  Net present value

¥ billion  

 

Re

 

 

 

v: 02_13_2015_QC_CS-6167

 

Indicate whether the following statement are true or false.

 

  

 

a.

A firm that earns the opportunity cost of capital is earning economic rents.

 

 

 

True

False

 

  

 

b.

A firm that invests in positive-NPV ventures expects to earn economic rents.

 

 

 

True

False

 

  

 

c.

Financial managers should try to identify areas where their firms can earn economic rents, because it is there that positive-NPV projects are likely to be found.

 

 

 

True

False

 

  

 

d.

Economic rent is the equivalent annual cost of operating capital equipment.

 

 

 

True

 

Demand for concave utility meters is expanding rapidly, but the industry is highly competitive. A utility meter plant costs $50 million to set up, and it has an annual capacity of 500,000 meters. The production cost is $5 per meter, and this cost is not expected to change. The machines have an indefinite physical life and the cost of capital is 10%. What is the competitive price of a utility meter?

 

$5

$10

 

Suppose the current price of gold is $1,500 an ounce. Hotshot Consultants advises you that gold prices will increase at an average rate of 12% for the next two years. After that the growth rate will fall to a long-run trend of 3% per year. Assume that gold prices have a beta of 0 and that the risk-free rate is 5.5%. What is the price of 1 million ounces of gold produced in eight years? (Enter your answer in billions rounded to 1 decimal place.)

 

 

 

  Future price

$ billion  

 

Subject Business
Due By (Pacific Time) 07/31/2015 12:00 am
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