Which of the following factors should Davis Company include in its CAPITAL BUDGE

Question

Which of the following factors should Davis Company include in its CAPITAL BUDGETING ANALYSIS? Check ALL the APPLY. (Why or Why Not)

1. Davis Company's annual interest rate expense will increase from $2 million to $3 million, due to the debt raised to finance this project.

2. Davis Company's addition of three new products to its product line requires an inventory increase of $55,000 per year.

3. If the current project is accepted, Davis Company will be forced to sell one of its exisitng divisions in order to satisfy anti-monopoly requirements.

4. Davis Company's annual preferred stock dividends will increase from $200,000 to $250,000, due to the additional shares sold to finance the project.

Explanation / Answer

Davis Company's annual preferred stock dividends will increase from $200,000 to $250,000, due to the additional shares sold to finance the project.

this is because , this provides the cashflow of the project, and how it will contribute to the firm's value. This will allow for a change in the NPV (Net Present Value) to show the profitability of the investment.

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