Assignment No 1 (To be handed in Week 2) See course package: Investment Analysis and Lockheed Tri Star Assignment No 2 (To be handed in Week 3) QUESTIONS FOR MRC CORPORATION l ’ What is the value today (end 1960) of American Rayon‚ assuming that the terminal value (in 1967) of the company’s operating assets is equal to the book value of its invested operating capital (PPE + WCR) in 1967? Do you agree with this assumption and can you provide some better alternatives discussed
Premium Corporate finance
million of debt and $5 million of equity. The interest rate is 8 percent and the marginal tax rate is 35 percent. The debt will be paid off in equal annual installments over the project’s 10-year life. A) Calculate APV. APV = NPV + PV of debt tax shield NPV = PV of cash flows - initial investment Initial Investment 10‚000‚000 Cash flows 1‚750‚000 Period 10 years Discounting rate 12% PV of cash flows 9‚887‚890 using the PV
Premium Net present value Finance Interest
END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Why is capital budgeting analysis so important to the firm? Answer: The fundamental goal of the financial manager is to maximize shareholder wealth. Capital investments with positive NPV or APV contribute to shareholder wealth. Additionally‚ capital investments generally represent large expenditures relative to the value of the entire firm. These investments determine how efficiently and expensively the firm will produce its product
Premium Net present value Corporate finance
Differences between APV and option valuation Valuing MW Acquisition by using APV method assumes in practice that exploiting of all MW’s reserves is certain and happens right after the acquisition. In other words‚ the APV method excludes the flexibility in future decision making. In this case‚ Apache has both an option to defer the exploiting of reserves into future and Apache may also choose not to exploit the MW reserves at all. As some of MW’s reserves are actually real options‚ the APV valuation method
Premium Discounted cash flow Option Net present value
calculations (expenses are considered in Ch. 4 of the AM note) • Life annuities and Life Insurance benefits are not guaranteed to be paid ‚ so NSP for these benefits depends on probability of receiving the benefit • NSP and APV (Actuarial Present Value) mean the same thing. APV terminology often used to denote that probabilities and interest are involved. 4 AS2053 Feb. 2012 Lecture Notes-AM Note-Chapter 2 Example 1 If j1=8%‚ compare the net single premiums of two products both paying $1‚000
Premium Life insurance
purchases the fleet from GM for $325‚000‚ and Hertz is able to issue $200‚000 of five year‚ 8% debt in order to finance the project. All principal will be repaid in one balloon payment at the end of the fifth year. What is the Adjusted Present Value (APV) of the project? 17.1 a. The maximum price that Hertz should be willing to pay for the fleet of cars with all-equity funding is the price that makes the NPV of the transaction equal to zero. NPV = -Purchase Price + PV[(1- TC )(Earnings
Premium Depreciation Finance Net present value
Name: Student ID: Section: AK/ADMS 4540 Financial Management Fall 2011 Exam 2 Part 1 Instructor: Dr. William Lim Time Limit: 1.5hours Instructions: Answer all 4 questions of this exam in the spaces provided on the question sheets. (If necessary‚ you may write on the back of the sheet). Although the stories may appear "plausibly real"‚ they are fictitious. You have 1 ½ hours to work. The marks for each question are given. Please provide the marker with the greatest opportunity to give you credit
Premium Corporate tax Debt Depreciation
American Home Products (AHP) has established a strong track record of revenue growth and return on equity over the past decade‚ producing a host of products in four separate business lines: prescription drugs‚ packaged drugs‚ food products‚ and housewares/household products. AHP’s distinctive culture emphasizes conservatism‚ cost control and risk aversion. AHP’s corporate structure also concentrated most decision-making authority with the incumbent chief executive‚ William F. Laporte. This approach
Premium Finance Corporate finance Stock market
Suggested Solution to Dorchester Ltd. Summary of Key Information The current exchange rate in European terms is So(£/$) = 1/1.50 = .6667. The initial cost of the project in British pounds is SoCo = £0.6667($7‚000‚000) = £4‚666‚900. The U.K. inflation rate is estimated at 4.5% per annum‚ or the mid-point of the 4%-5% range. The U.S. inflation rate is forecast at 3% per annum. Under the simplifying assumption that PPP holds [pic] = .6667(1.045)t/(1.03)t. The before-tax nominal contribution
Premium Depreciation Time United States dollar
----------------------------------- Jul 23‚ 2006 Industry Report of the FMCG sector profiling P&G‚UL‚KMN‚ ----------------------------------- Financial Statement Analysis In the healthy and growth inducing economic scenario of the 2000’s‚ P&G has seen double digit revenues growth to around $56b in 2005. Keeping its costs low has seen it achieve healthy profit margins of around 11% - 12%. Refer Table 1. Table 1 Margins P&G (in %) 2003 2004 2005 Gross Margin 49 51
Premium Dividend Stock market