Define an “Incremental cash flow” as the term is used in capital budgeting.

Question 1. List the three steps that make up the general approach to capital budgeting.
Question 2. Define an “Incremental cash flow” as the term is used in capital budgeting.
Question 3. Your firm is considering buying a new machine that costs $200,000, is expected to generate $110,000 in new revenue each year and will cost $45,000 a year to operate. If your firm’s marginal income tax rate is 35% what is the Net Cash Flow your firm will realize from the new machine during the first year? Assume the MACRS depreciation rate for the machine for year 1 is 20%. Note – do not include the cost of the machine in your answer.
Question 4. Define the payback period method in capital budgeting and state the payback period decision rule.
Question 5. What is the payback period of the following project?
Question 6: a. What is the firm’s Breakeven Point in units?
Question 7. Define the Net present Value (NPV) method in capital budgeting and state the NPV decision rule. In economic terms, what does the NPV amount represent?
Question 8. Your firm is looking at a new investment opportunity, Project Alpha, with net cash flows as shown below. Calculate project Alpha’s Net Present Value (NPV), assuming your firm’s required rate of return is 10%.
Question 9. Define the Internal Rate of Return (IRR) method in capital budgeting and state the IRR Decision rule.
Question 10. Calculate the IRR of the project shown below.
Question 10. Calculate the IRR of the project shown below.

 

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