The Investment Detective - 876 Words

CASE STUDY The Investment Detective The essence of capital budgeting and resource allocation is a search for good investments in which to place the firm’s capital. The process can be simple when viewed in purely mechanical terms, but a number of subtle issues can obscure the best investment choices. The capital budgeting analyst is necessarily, therefore, a detective who must winnow good evidence from bad. Much of the challenges is knowing what quantitative analysis to generate in the first place. Supposed you are a new capital budgeting analyst for a company considering investments in the eight projects listed in Exhibit 1. The chief financial officer of your company has asked you to rank the projects and recommend the â€Å"four†¦show more content†¦Project 2 and 6 are similar to an actual venture capital project where bulk of the cash inflow occurs at the end while some of the inflow is at the beginning. Project 3 is similar to a zero coupon bond where you purchase the bond at a specific price and you receive an big cash outflow at the end of the maturity period. Project 4,7 and 8 are like an investment in a machinery, which generates positive cash for you for a certain period of time. After a while, you can sell that off and receive some more cash. You might have some additional cash outflows initially to get the machinery going (training etc.). Project 5 is similar to an annuity. Part II The company has the following capital structure: |Account |$ |Costs before tax | |Long-term Debt |2,000,000 |10% | |Preferred Stock |500,000 |14% | |Common Stock |2,500,000 |16% | 1. Calculate the weighted average cost ofShow MoreRelatedInvestment Detective868 Words   |  4 PagesCase 17 – The Investment Detective The case of the Investment Detective laid out the cash flows for us in each of eight different projects. Before doing any calculations we came up with the assumption that we could not rank the projects simply by inspecting the cash flows. Without the ability to rank the projects based off of cash flows solely, we had to use some analytical criteria as a capital budgeting analyst to provide some thorough support and reasoning for how we ranked the four bestRead MoreInvestment detective782 Words   |  4 Pagesï » ¿The Investment Detective Case We can use normal investment to calculate the data, but we also can do it as reinvestment to invest every project for the same years. For every question, I will give answers for both normal investment and reinvestment. 1. We can rank the projects simply by the cash flow data. Normal investment: Rank 1 2 3 4 5 6 7 8 Project number 3 8 6 1 5 7 4 2 Cash flow 8000 2150 200 1310 2200 560 1561 165 Reinvestment: Rank 1 2 3 4 5 6 7 8 Read MoreThe Investment Detective2301 Words   |  10 PagesProject Free Cash Flows (dollars in thousands) Project number: 1 2 3 4 5 6 7 8 Initial investment (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) Year 1 $ 330 $ 1,666 $ 160 $ 280 $ 2,200 $ 1,200 $ (350) 2 330 334 200 280 900 (60) 3 330 165 350 280 300 60 4 330Read MoreThe Investment Detective2313 Words   |  10 PagesProject Free Cash Flows (dollars in thousands) Project number: 1 2 3 4 5 6 7 8 Initial investment (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) Year 1 $ 330 $ 1,666 $ 160 $ 280 $ 2,200 $ 1,200 $ (350) 2 330 334 200 280 900 (60) 3 330 165 350 280 300 60 4 Read MoreThe Investment Detective Essay655 Words   |  3 PagesCase Study: The Investment Detective Primary consideration is the capital availability. If the firm has unlimited access to capital and no other investment options, Net Present Value would become recommended quantitative method. On the other hand, if the time horizon and payback period matter, the company should use Internal Rate of Return Calculation. 1. Looking at the cash flows doesn’t really say much. The assumption is that the firm is in the business to make profit. Profit is equal returnRead MoreCase Write Up The Investment Detective 11373 Words   |  6 Pagesï » ¿Case Write-Up: The Investment Detective Case Summary The purpose of this case is to become a capital budgeting analyst and evaluate which set of free cash flows for 8 projects will result in the most effective investment for a firm’s capital. The objective given is to rank the four best that the company should accept. The case is broken down into three separate steps including the given information about estimated cash flows (inflows outflows), determining the appropriate discount rate, and evaluatingRead MoreCyber Threat Intelligence Based On Cyber Threats1612 Words   |  7 PagesOfficers must obtain a consensus for which mitigating controls are key, which can be a trying negotiation between the CISO, Chief Technology Officer, Cyber Threat Intelligence (CTI), Infrastructure Engineering, Audit and Assurance teams, and the Investment and Audit committees. How do you harness your entire organization to focus on a common agreed-upon list of key security controls? By defining key controls based on cyber threats (translated into business risks), an organization can more easilyRead MoreWhy Security Controls Is Important Than Which Controls You Put On A Compliance Checklist1624 Words   |  7 Pagesin place, implement them (this drives security investments). 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