Finance 320

Typically, a firm has a ______ department that searches for ways of improving existing products or finding new products.

Research and development

A firm is considering developing a new product which will cost $60,000. The free cash flows resulting from the project are provided in the table below. Inital outlay: ($60,000) Inflow Y1: 37,000 Inflow Y2: 30,000 Inflow Y3: 15700 Inflow Y4: 12600

$24,767.96

Assume we have total fixed costs of 18000 and a product that we sell for a 45 a unit. If variable costs are 28/unit what is our breakeven level of units and our sales revenue?

1059, $47,6555

a firm expects to spend 15000 on project C, In year 1 it forecasts a cash flow of 8000, in year 2 5000, Y3 3000, Y4 3000. What is the IRR for this project?

12.66%

a firm expects to spend 15000 on project B, In year 1 it forecasts a cash flow of 9000, in year 2 6000, Y3 3000, Y4 1000. What is the IRR for this project?

14.58%

a firm expects to spend 15000 on project A, In year 1 it forecasts a cash flow of 7000, in year 2 4000, Y3 3000, Y4 2000. What is the IRR for this project?

3.31%

A company is considering a $12,000 investment in a project with the following predicted cash flows in the subsequent four years; 5300, 4000, 3800, 3000. It requires a 15% return. What is the profitability index for this investment and what does it suggest?

Because the profitability index is 0.987, the company should reject the opportunity.

A firms maximum desired payback peirod for a project costing 11000 is two years. Based on this criterion, which project should be chosen? A B Inital Outlay: (11,000) (11,000) CF YI: 9000, 7000 CF y2: 6000, 4000 CF Y3: 3000, 3000 CF Y4: 1000, 2000

Both meet criteria

The formula for break-even analysis is

Break-even number of units= total fixed costs divided by (sales price per unit- variable costs per unit)

Many firms limit the size of their ___ budget to grow the firm strategically.

Capital

______ is when a firm has a maximum amount of money it is willing to spend on new instruments.

Capital rationing

What is not used to rank proposed projects?

dividend growth model

Without question, it is easier to ______ profitable projects or investments in fixed assets, a process referred to as capital budgeting, than it is to_________ them.

evaluate, find

Variable costs varies directly with ____ and is primarily composed of raw materials, direct labor, utilities, and selling costs.

output