Case Study #1: Green Valley Medical 1-Green Valley Medical Center is a nonprofit teaching hospital affiliated with a large state university and had grown since its foundation in the 1930s with continuous support from state revenues. Since it is a nonprofit organization its main goal is not to create profit for the investors‚ but to reach their institutional goals‚ which in this case is to offer good service for the region it is located in and to train the students that attend to the state university
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valuable the option will be‚ other things held constant. ____ 9. If a project’s NPV exceeds its IRR‚ then the project should be accepted. ____ 10. The NPV method’s assumption that cash inflows are reinvested at the cost of capital is more reasonable than the IRR’s assumption that cash flows are reinvested at the IRR. This is an important reason why the NPV method is generally preferred over the IRR method. Multiple Choice Identify the choice that best completes the statement or answers the
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Internal rate of return for law firm financial executives: A simple‚ non-t echnical explanation. The Attorney - CPA‚ 40(3)‚ 4-6. Retrieved from http://search.proquest.com/docview/205864289?accountid=32521 Basu‚ U. K. (2012). Existence and uniqueness of IRR for realistic investment scenarios and descartes rule of signs. Rochester‚Rochester: doi: http://dx.doi.org/10.2139/ssrn.1938866
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528‚840 NPV = CF1/(1+k)1 + CF2/(1+k)2 + CF3/(1+k)3 + CF4/(1+k)4 + CF5/(1+k)5 – CF0 Calculator solution = 428‚968.70 NPV = 2‚528‚840 - 2‚100‚000 NPV = 428‚840 IRRY = 18.82% Both NPV and IRR are better for Project Y. The NPV and IRR are higher. 2. Plan X Year CF PVIF13%‚n PV 1 470‚000 0.885 415‚950 2 610‚000 0.783 477‚630 3 950‚000 0.693 658‚350 4 970‚000 0.613 594‚610 5 1‚500‚000 0.543 814‚500 2‚961‚040 NPV = CF1/(1+k)1
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Caladonia Products Integrative Problem FIN 370 As a newly assigned assistant financial analyst at Caledonia Products‚ Team D has been charged with calculating the cost of two projects‚ projected returns‚ cost of equipment‚ and finally a recommendation as to which project to pursue and why. In order to make a recommendation we need all potential cost incurred‚ unit price‚ projected sales‚ and market information. The cash flows associated with these projects are as follows: |YEAR
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CAPITAL BUDGETING The process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing. Oftentimes‚ a prospective project’s lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark. Also known as "investment appraisal." Generating investment project proposals consistent with the firm’s strategic objectives; Estimating after-tax incremental
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owned plants which usually comes with its own restrictions. We will be calculating the individual cash flows of its existing Paducah operations and the ACP project it is planning to invest in. Our decision will be based on the incremental NPV and IRR. This report will walk us through all the important aspects of our analysis and ultimately to our final decision of whether accepting or rejecting the project. Background USEC is pursuing ACP for several reasons‚ most of which can be attributed
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costs $35.000 but the company expects an annual saving of $5.000 additional cash flow. The machine is expected to last 15 years and the cost of capital is 12 %. First I would calculate the NPV and the IRR. If the NPV is higher then the return on the capital market‚ the project is profitable. The IRR shows me the discount rate that puts the NPV to zero. It could also be explained as the break-even point. Additionally the company could get a “Good As New” service contract for $500 a year. The machine
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1. How will discount rates of 8‚ 10‚ 12‚ 14‚ and 16 percent affect the project’s feasibility? Figures 6 – 10 provide suggested answers for this question. The answers for this question assume a useful life of 5 years. Using a discount rate of 8 percent‚ the net present value of all benefits is $1‚732‚836.16; the net present value of all costs is $1‚640‚384.79; the overall net present value is $92‚451.36‚ and the project breaks even in approximately 3.84 years. Using a 10 percent discount rate‚ the
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TEST 2 MGF 301 Corporation Finance Fall 2013 Please sign name in box (Note: Total Points = 100; Multiple Choice = 4 points each unless otherwise indicated) 1. YT Inc. is considering implementing a new project. Which of the following is a cash flow that should be taken into account for capital budgeting purposes? (a) Expected lost sales in a related YT Inc. product caused by the new product (b) The annual bonus paid to the YT Inc. President based on last year’s earnings
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