Ch . 1 1 :
Capital Budgeting Cash Flows
Gizmo Corporation expects rapidly increasing demand for gizmos, and is considering
expansion of its production facility. The project would require the firm to purchase new
equipment and upgrade old software. The
C a p i t a l St r u c t u r e M a n a ge m e n t
You and your team mates decide to form a corporation after graduating from UCF. You have
lined up a number of investors and two financing plans have been suggested for the corporation.
P r a c t i c e Q u es t ion s - C h a p t e r 8
Given the risk of XYZ Corp. common stock, your required rate of return is 16%. Given
the current economic conditions and the current market price of the stock, you determine
that the stock's expected ret
L e v e r a ge
Suppose you are starting a new retail store. You would like to have an operating profit
margin (EBIT/Sales) of 30%. Your unit contribution margin will be 55% of sales price,
and annual sales are expected to be $15 million.
To what dol
Windsor Corporation paid a cash dividend of $2.15 per share eight years ago to the firms common
stock holders. Recently, the firm paid a dividend of $4.13. Dividends are expected to grow in the
future at the same annual rate as during the past e
Cost of Capital
1. Bendex Corporation
Bendex Corporation has a capital structure consisting of 40% debt and 60% equity. The
firm is planning to raise $25 million to finance its capital investment projects.
Bendex can raise debt funds through bank l
C a p i t a l B u d ge t i n g T e c h n i q u es
Suppose your firm is trying to choose between the two mutually exclusive projects below:
Project X Cash Flows
Project Y Cash Flows
T i m e V a l u e of M on e y - si n gl e su ms
Find the future value of the following:
$100,000 for 10 years at 12% compounded annually.
$100,000 for 10 years at 12% compounded quarterly.
$100,000 for 10 years at 12% compounded monthly.
I nsu r a n c e E x a m p l e
Suppose you and your spouse are both 25 years old. You each earn $50,000 per year and
you have a young child. To protect your young family, you are considering a life insurance
policy. In the event of your unfortunate deat
Income Statements and Corporate Taxes
Last year, Oviedo Products Corporation had sales of $1 million. The firms cost of
goods sold amounted to 31% of sales and cash operating expenses were $240,000.
Oviedo Products has $420,000 in equipment