1.Conceptually, what is the difference between the methods used to estimate the expected future profits and the expected future cash flows of a

1.Conceptually, what is the difference between the methods used to estimate the expected future profits and the expected future cash flows of a potential investment opportunity?

2.Why is the reinvestment assumption associated with the NPV calculation more appropriate than the reinvestment assumption associated with the IRR calculation?

Hypothetically, you work for a firm that owns and operates five car dealerships.  The chief investment officer suggests that the firm should buy gold as an investment because he read in the paper that the demand for gold is expected to go up significantly in the future.  Would you expect this to be a value enhancing investment? 

4. If the expected IRR of a potential investment opportunity is greater than the firm’s WACC, then we know that this is a value enhancing investment opportunity.  Agree or disagree, and why?

5. When estimating the adjusted NPV (or APV) of a project, an analyst needs to estimate the asset’s beta to determine the project’s risk adjusted discount rate (RADR or Ka).  Should the analyst gather the necessary inputs (equity beta, debt beta, tax rate, etc.) from the firm considering the investment or from a set of pure play firms?  Explain.

6.As a financial analyst of a small manufacturing firm you must consider how to adjust your NPV analysis for the investment to expand the firm’s production facility in eastern Washington given the news that state regulators are considering new regulation that would make it considerable more costly to operate this facility in eastern Washington look like.  What would brief memo to the CFO on how you would adjust your NPV analysis be as specific as possible (include a discussion of risk adjusted discount rates and the appropriate risk assessment tool to be used). 

7 .Your firm is considering investing $40 million to develop some new technology to enhance the sales of your existing products. The expected NPV from this investment equals $1.7 million and it was reported that the breakeven level of investment dollars into the development of this new technology is $42 million.  Based on these results from this breakeven analysis, would you recommend the firm invest the $40 million to develop the new technology?

8.You work for a firm in their capital budgeting division and your manager has asked you about the benefits of applying Monte Carlos Simulation when analyzing the firm’s alternative investment opportunities.  How would you respond?

9. give a recommendation regarding the decision to invest or not invest in this potential investment opportunity given the following results from Monte Carlo Simulation model:

            Mean NPV              Standard Deviation              Prob(NPV>0)          Value at Risk (VAR)

              $18 m                           $ 38 m                                68%                            -$28 m

10. The Adjusted Net Present Value (APV) model is better to evaluate a potential investment opportunity facing the firm than the traditional NPV model (discounting at WACC) because the APV model considers the valuation effects of financing the project with debt.  Agree or disagree?  Explain why.

11.  If a firm decides to permanently increase its debt to asset ratio (leveraging up):

a.  What would be the impact on the firm’s WACC? Explain!

b.  What would be the impact on the firm’s asset beta? Explain!

c.   Assuming the firm uses their WACC as the required return, what would be the impact on the NPV of the firm’s potential investment opportunities?  Explain!

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 10% with the coupon code: best10