Should a firm ever accept a project that has a negative NPV when discounted at the weighted average cost of capital?
What will be an ideal response?
One reason we like the adjusted net present value approach to valuation is that it specifies all of the possible sources of value for a project. The WACC approach works well for projects that will support a certain percentage of leverage and that have no other associated features, such as interest subsidies or growth options that might add value to the project. If the only cash flows from the project are the ones that are being discounted and there are no other sources of value, other than the interest tax shields that are included in the WACC analysis, then the WACC approach finds the market value of the levered project. If this is negative, the project should be rejected.
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For the following probability distribution: x f(x) 0 0.01 1 0.02 2 0.10 3 0.35 4 0.20 5 0.11 6 0.08 7 0.05 8 0.04 9 0.03 10 0.01 ? a.Determine E(x).b.Determine the variance and the standard deviation.
What will be an ideal response?
A company's Inventory balance at the end of the year was $188,000 and $200,000 at the beginning of the year. Its Accounts Payable balance at the end of the year was $84,000 and $80,000 at the beginning of the year, and its cost of goods sold for the year was $720,000. The company's total amount of cash payments for merchandise during the year equals:
A. $712,000. B. $704,000. C. $720,000. D. $728,000. E. $736,000.
The effectiveness of an advertising campaign can be measured
A. only after the campaign has been carried out completely and results have been tabulated. B. only before the campaign begins, to prevent unnecessary expenditures. C. during the campaign to determine whether more or less funds should be allocated, but not after the campaign. D. several weeks after the beginning of the campaign to determine whether the campaign is headed in the right direction. E. before, during, and after the campaign through the use of pretests, inquiries, and posttests.
Platko Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold. There is no variable manufacturing overhead. The standard cost card for the company's only product is as follows:InputsStandard Quantityor HoursStandard Price or RateStandard CostDirect materials3.6gallon$7.00per gallon$25.20Direct labor0.80hours$22.00per hour 17.60Fixed manufacturing overhead0.80hours$14.50per hour 11.60Total standard cost per unit $54.40The standard fixed manufacturing overhead rate was based on budgeted fixed manufacturing overhead of $348,000 and budgeted activity of 24,000 hours.
During the year, 38,900 units were started and completed. Actual fixed overhead costs for the year were $335,900.Assume that all transactions are recorded on a worksheet as shown in the text. On the left-hand side of the equals sign in the worksheet are columns for Cash, Raw Materials, Work in Process, Finished Goods, and PP&E (net). All of the variance columns are on the right-hand-side of the equals sign along with the column for Retained Earnings.When the fixed manufacturing overhead cost is recorded, which of the following entries will be made? A. ($12,100) in the FOH Budget Variance column B. ($12,100) in the FOH Volume Variance column C. $12,100 in the FOH Budget Variance column D. $12,100 in the FOH Volume Variance column