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ACC 420 Module 1 Assignment 2

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Capital Budgeting Criteria

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ACC 420 Module 1 Assignment 3 Analyzing Capitals Expenditures

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ACC 420 Module 1 Assignment 3 Analyzing Capitals Expenditures

Assume that you have received a capital expenditure request for $52,000 for plant equipment and that you are required to do a justification analysis using capital budgeting techniques. The company’s cost of capital is 12% and the equipment (investment) is expected to generate net cash inflows of $13,000 per year for 8 years and then $9,000 for one year.

You are to calculate and explain your quantitative calculations of each of the four capital-budgeting techniques listed, then, based upon these calculations, write a summary that provides a justification to proceed or not proceed with the project.

Calculate the project’s net present value (NPV).

Calculate the project’s internal rate of return (IRR).

Calculate the project’s profitability index.

Calculate the project’s discounted payback period.

Recommend whether the project should be accepted or rejected and explain why.


To complete this assignment, submit an Excel file with your time value calculations, and a two-page paper that explains the calculations and provides your recommended decision and explanation of why that decision is recommended.The paper must be submitted as a Word document and it must follow APA style guidelines.

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ACC 420 Module 2 Assignment 1

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Capital Rationing

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ACC 420 Module 2 Assignment 2 Estimating Cash Flows

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ACC 420 Module 2 Assignment 2 Estimating Cash Flows

Assume that your company is considering the replacement of an automated milling machine with one of the new machines offered by three different manufacturers. Each of the three machines under consideration is expected to have an economic life of five years and will result in greater daily production capacity and therefore increased sales volume. The increased volume will require an increase in working capital during the first year to a level that will remain constant until the end of the five years. The decision of which specific machine to select will depend on a net present value analysis. The old machine has reached the end of its estimated useful life and can be sold at the salvage value that was projected when the machine was first installed.

Listed below are factors that may be essential for inclusion when estimating project cash flows. The factors may be required to correctly calculate the initial investment, the operating cash flows, or the terminal value that would be analyzed to determine the net present value of the


project. It is also possible that certain factors could be used in more than one of the three categories of cash flow. Another possibility is that the factor listed is not relevant to cash flow estimation for this specific scenario.

Your task is to identify whether the factor would be included in the calculation for the initial investment, or the operating cash flow, or the terminal value, or is not relevant to this decision. You must also explain whether failure to appropriately include the factor in the calculation would result in overstating or understating the net present value of the project.

FACTORS

Purchase price of capital asset

Incremental annual depreciation expense

Total company sales revenue

Cash realized from sale of the old machine at its estimated salvage value

Interest on the loan used to finance the asset purchase


Total annual depreciation expense

Increase in working capital

Decrease in working capital

Total net income before tax

Incremental net income before tax

Marginal income tax rate

Investment tax credit

Cost of shipping and installing the new equipment

Directions and Grading Criteria

To complete this assignment, you are to develop a PowerPoint presentation. You should create 1-3 slides that identify the factors used


to determine the initial investment, 2-5 slides that identify the factors used to determine the operating cash flow estimates, and 1-3 slides that identify the factors used to determine the terminal value estimate. You must also indicate on the slides whether failure to appropriately include the factor in the calculation would result in overstating or understating the net present value of the project. Additional explanations or comments should appear in the speaker notes for each slide. APA standards for writing style must be applied to the speaker notes. Factors that are not relevant to the NPV calculation should not be included on any slide.

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ACC 420 Module 3 Assignment 1

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Project Risk


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ACC 420 Module 3 Assignment 2 LASA 1 NPV, Sensitivity, Risk, Bias and Ethics in Capital Budgeting

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ACC 420 Module 3 Assignment 2 LASA 1 NPV, Sensitivity, Risk, Bias and Ethics in Capital Budgeting

Explain your recommendation regarding whether the project should be accepted and a justification of your response.

Provide an explanation of how adjusting the discount rate in the basic NPV model of capital budgeting deals with the problem of project risk.

Examine the potential motivation for unethical behavior by executives that may take place in the capital budgeting process and explain how


biasing cash-flow estimates can work to the advantage of the executive who intentionally inserts such bias.

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ACC 420 Module 4 Assignment 1

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Budgeting With Real Options

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ACC 420 Module 4 Assignment 2 The Cost of Capital


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ACC 420 Module 4 Assignment 2 The Cost of Capital

Assume that you are a member of an aerospace company’s newly formed executive committee that has been given the role of reviewing requests for major capital expenditures. The committee chairman has laid the groundwork for approving requests that managers of various organizational units have submitted by reminding the group that their charge is to approve the investment opportunities that will best meet the company’s financial objective of maximizing shareholder wealth.

One of the more outspoken individuals on the committee vigorously pushed the concept that the best way to maximize shareholder wealth would be to accept all of the projects that promise a return that is higher than the long-term interest rates on bonds or bank loans. This same committee member is also insistent that the company turn to borrowed funds as needed to augment existing funds so that all of the projects that are attractive to the committee, and that promise a return that is higher than the borrowing rate, can be accepted.


Other committee members expressed concern about that approach but the time scheduled for adjourning the meeting arrived before the disagreement was resolved. You have been assigned to examine the issue and, in the spirit of taking advantage of a teaching moment, circulate a report that will bring all committee members to a common understanding of the decision criteria that should be adopted by the committee. The chairman asked that your report address the following questions that seemed to be present during the committee meeting.

1. Why would the suggested approach of using the cost of new debt as the hurdle rate probably not result in maximizing the shareholders wealth? 2. What role does the cost of capital play in the committee’s work? 3. How might a company’s WACC be affected by changes in the size of its capital budget? 4. When and why would it be inappropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities? 5. In what situations would it be appropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities? 6. For the situations in which it would be inappropriate to use the firm’s cost of capital as calculated on its existing capital structure to evaluate new investment opportunities, what are the alternatives that might be used instead as the hurdle rate?


Prepare a 3-4 page report in which you answer the questions as requested by the committee chairman. Apply APA standards for writing style to your report.

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ACC 420 Module 5 Assignment 1 LASA 2 Air value Airways Strategic Planning

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ACC 420 Module 5 Assignment 1 LASA 2 Air value Airways Strategic Planning

Air value Airways is a regional carrier whose strategy is to expand gradually as they can identify routes that offer an attractive return on the investment necessary to support successful coverage of the route. As part of this expansion, the company is planning to buy a new plane in the


upcoming fiscal year. The purchasing department has narrowed the choice down to two models. One is the A220 which is manufactured in Europe. The other plane is the G435 which is built in the United States. The two aircraft have similar profiles. However, the locally-built G435 is significantly more expensive to purchase.

The A220 has an expected life of 5 years, will cost $90 million and its use will produce net operating cash inflows of $30 million per year. The G435 has a life of 10 years, will cost $128 million, and its use will produce net operating cash inflows of $25 million per year. Air value plans to serve the route for 10 years. When they need to purchase a new A220 at the end of five years, the cost will be $115 million net after allowing for salvage value of the used plane. Net operating cash inflows will remain at $30 million throughout the second five years. At the end of 10 years, salvage value of the G435 and of the second A220 are expected to be about the same at approximately $500,000 each.

As the company’s CFO you are to provide the financial analysis that will be considered by the strategic planning executive committee during evaluation of this expansion alternative. Your plan is to use a capital budgeting approach to the analysis in order to best assure that the decision will result in maximization of wealth for the company’s stockholders. You also want to convert the entire committee to the concept that capital budgeting should be used as the main tool for the financial analysis of capital expenditure alternatives.


The company uses the historical difference in returns between the S&P 500 and the Treasury bond rates of 7% as their estimated market risk premium. The current yield to maturity on a 10-year Treasury bond is 6.2%. Air value Airways’ common-stock equity beta is estimated as 1.40.

Air value’s capital structure is 58% common stock, 32% preferred stock and 10% long-term debt. An 8.8% after tax cost of debt has been determined and the cost of preferred stock is 12%.

Your task is to:

1. Describe for other members of the strategic planning committee the role that capital budgeting should play in corporate strategic management.

2. Explain why the NPV and IRR capital budgeting tools are superior to the accounting rate of return and simple payback techniques for determining the attractiveness of capital investment opportunities.

3. Use the Capital Asset Pricing Model (CAPM) to identify the cost of common stock.

4. Calculate the weighted average cost of capital (WACC) for the firm’s existing capital structure.


5. Calculate the net present value (NPV) for each plane model using the company’s WACC as the hurdle rate.

6. Recommend which plane should be purchased and justify your recommendation.

7. Discuss the need to manage implementation of the project so that the higher returns can be realized.

Include the strategic management keys to protecting the project from competitive forces that would erode the earning power of the project and jeopardize realization of the projected rate of return on the investment.

To complete this assignment, you must submit a 6-8 page paper that addresses the seven elements of the task as listed above and exhibits your calculations of the cost of common stock, the weighted average cost of capital, and the NPV for each plane along with an explanation of the calculations.

The paper must be submitted as a Word document and it must follow APA style guidelines.

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ACC 420 Week 5 Assignment 2

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Memorandum

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ACC 420 Expect Success/newtonhelp.com  

ACC 420 Module 1 Assignment 2 For more course tutorials visit www.newtonhelp.com Capital Budgeting Criteria ----------------------------...

ACC 420 Expect Success/newtonhelp.com  

ACC 420 Module 1 Assignment 2 For more course tutorials visit www.newtonhelp.com Capital Budgeting Criteria ----------------------------...

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