You are a financial analyst working for Salalah Mills LLC The Director of Capital Budgeting has...

You are a financial analyst working for Salalah Mills LLC The Director of Capital Budgeting has asked you to analyze an Investment Proposal. The investment will need an initial cash outflow if OMR 60000 and has a life of 5 years.

Following information is given Cash flow ( OMR) year 1 16000 year 2 16000 year 3 22000 year 4 22000 year 5 31000

a) Calculate the Net present value for using the discounting money cash flows if the rate of inflation is 6 % and cost of capital is 13% .

b) Calculate the Net present value by discounting real cash flows if rate of inflation is 7% and the cost of capital is 12% .

c) What is the impact of inflation on Project Appraisal and how can companies address these issues. (200 words). Also calculate the real interest rate using Fisher effect for South Africa, Brazil, Romania, Vietnam and China, if the nominal interest rate in all the above countries is 10%. Please mention the source of information.

Expert Solution

Solution:

ekkarill92 answered 2 years ago

You are a financial analyst for the Waffle Company. The director of capital budgeting has asked...

You are a financial analyst for the Waffle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects A and B. Each project has a cost of $50,000, and the cost of capital for each is 10%. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project A Project B 0 ($50,000) ($50,000) 1 25,000 15,000 2 20,000 15,000 3 10,000 15,000 4 5,000 15,000 5 5,000 15,000 e....

You are a financial analyst for the Hittle Company. The director of capital budgeting has asked...

You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects’ expected net cash flows are as follows: Expected Net Cash Flows Year Project X Project Y 0 ?$10,000 ?$10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500 4 1,000 3,500 a. Calculate each project’s...

Q- 2 You are a financial analyst for the Hittle Company. The director of capital budgeting...

Q- 2 You are a financial analyst for the Hittle Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the cost of capital for each is 12%. The projects’ expected net cash flows are as follows: Year Project X Project Y 0 −$ 10,000 −$10,000 1 $ 6,500 $ 35,00 2 $ 3000 $ 35,00 3 $ 3000 $ 35,00 4 $...

As the capital budgeting director of Union Mills Inc., you are analyzing the replacement of an...

As the capital budgeting director of Union Mills Inc., you are analyzing the replacement of an automated loom system. The old system was purchased 5 years ago for $200,000; it is in CCA class 8; it has 5 years of remaining life; however, due to technological change there is no resale value for the system. The new system has a price of $300,000, plus $50,000 in installation costs. The new system falls into the same CCA class, has a 5-year...

You are the financial analyst for the Glad It’s Finally Over Company. The director of capital...

You are the financial analyst for the Glad It’s Finally Over Company. The director of capital budgeting has asked you to analyze a proposed capital investment. The project has a cost of $30,000 and the cost of capital is 10%. The project’s expected net cash flows are as follows: Year Expected Net Cash Flow 0 ($30,000) 1 12,500 2 10,000 3 10,000 4 8,000 A) What is the project’s payback period? B) What is the project’s discounted payback period? C)...

You are a senior financial analyst with IBM in their capital budgeting division. IBM is considering...

You are a senior financial analyst with IBM in their capital budgeting division. IBM is considering expanding in Australia due to its positive business atmosphere and cultural similarities to the U.S. The new facility would require an initial investment in fixed assets of $5 billion Australian and an additional capital investment of 3% would be required each year in years 1–4. All capital investments would be depreciated straight-line over the five years that the facility operates. First-year revenues from the...

Exercise Example - Capital Budgeting Project Analysis - Chapter 5 As director of capital budgeting, you...

Exercise Example - Capital Budgeting Project Analysis - Chapter 5 As director of capital budgeting, you are reviewing three potential investment projects with the following cost and cash flow projections. Cash Flow Project A Project B Project C Investment Cost ($500,000) ($375,000) ($475,000) Year One Cash Flow $200,000 $175,000 $250,000 Year Two Cash Flow $180,000 $50,000 $200,000 Year Three Cash Flow $100,000 $50,000 $75,000 Year Four Cash Flow $80,000 $50,000 $30,000 Year Five Cash Flow $140,000 $300,000 $30,000 Calculate the...

You are financial analyst for the XYZ company. The director has asked you to analyze two...

You are financial analyst for the XYZ company. The director has asked you to analyze two proposed capital investments, Project A and Project B. Each project has a cost of RM 10, 000, and the cost of capital for each project is 12 percent. The project s’ cash flows are as follows: Year Expected Net Cash Flows Project A Project B 0 (10,000) (10,000) 1 6500 3500 2 3000 3500 3 3000 3500 4 1000 3500 Calculate each project’s NPV....

Working Capital Management and Capital Budgeting are two functions of the financial manager. Explain which of...

Working Capital Management and Capital Budgeting are two functions of the financial manager. Explain which of these two functions you believe is most important for the financial manager of a small business. (minimum 200 words)

Assume that you are a new analyst hired to evaluate the capital budgeting projects of the...

Assume that you are a new analyst hired to evaluate the capital budgeting projects of the company which is considering investing in two CPEC projects, “Expansion Zone North” and “Expansion Zone East”. The initial cost of each project is Rs. 10,000. Company discount all projects based on WACC. Further, all the projects are equally risky projects and the company uses only debt and common equity for financing these projects. It can borrow unlimited amounts at an interest rate of rd...

Question