external and internal investment strategies‚ including the NPV of an acquisition‚ source of synergy from acquisitions‚ reducing the cost of capital‚ and the cost of equity capital. NPV of an Acquisition The net present value is defined as the section suggested calculating the difference between the sum of the present values of the project ’s future cash flows and the initial cost of the project (Ross‚ Westerfield‚ & Jaffe‚ 2005‚ p.144). The NPV analysis is sensitive to the reliability of future cash
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expenses from income. $660‚000 - $100‚000 = $560‚000‚ which is the amount made from ticket sales. Next we had to get the Net Present Value (NPV)‚ which is the “sum of the present values of all expected cash flows (Horngren‚ Sundem‚ Stratton‚ Burgstahler‚ and Schatzberg‚ 2008)‚” of the before tax net cash inflow. We took the net income and multiplied it by the NPV factor‚ which is 6.6231. $560‚000 * 6.6231 = $3‚708‚936. Then we compared it to the investment‚ of $3.3 million to see if it’s worth investing
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the project’s life. The project will generate additional revenues of $64‚000 in year 1 and these revenues will grow annually at a rate of 10%. The additional expenses of the project will be $15‚000 in year 1 and will grow annually at 8%. What is the NPV and the IRR of the Project? Would you accept or reject this problem? Precisely state the reason why. Solution:- Telecom Italia | | | | | | | | | Year | | 0 | 1 | 2 | 3 | 4 | 5 | | | | | | | | | | | | |
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to result in additional cash flows to Rainbow of $5‚000 per year. Themachine costs $35‚000 and is expected to last for 15 years. Rainbow has determined that the cost ofcapital for such an investment is 12%.[A] Compute the payback‚ net present value (NPV)‚ and internal rate of return (IRR) for this machine.Should Rainbow purchase it? Assume that all cash flows (except the initial purchase) occur at the endof the year‚ and do not consider taxes. Rainbow Products is considering the purchase of a paint-mixing
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000‚000.00 Every year for the next 10 years‚ the firm earns a profit of $11 Million. The cash flow (in $ Million) is shown below: Year T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 Profit 11 11 11 11 11 11 11 11 11 11 Using NPV formula‚ we find NPV=$62‚152‚453.31 b) The NPVs (in $ Million) for variations in profit per ounce and interest rate are shown in table below: 8% 9% 10% 11% 12% 13% 14% 15% $500 33.55 32.09 30.72 29.45 28.25 27.13 26.08 25.09 $600 40.26 38.51 36.86 35.34 33.9 32.56 31
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V* = V + ΔV = $10‚800‚000 + ($330‚000 ÷ 0.11) = $13‚800‚000 Therefore: Stock Alternative Cost =0.42*(14.2m+13.8m)=11760000 = 0.42 × ($14‚200‚000 + 13‚800‚000) = $11‚760‚000 b) What is the NPV of each alternative? Npv cash=v*-cost cash=13800000-11300000=2500000 Stock alternative: NPV stock=v*-cost stock=13800000-11760000=2040000 c) Which alternative should XYZ Corporation choose? The cash cost is less than the stock cost‚ so XYZ Corporation should choose to acquire Stake Technology
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Issues surrounding Collinsville opportunity 5 Valuation 5 Using NPV Rule for the project – Without Laminated Electrodes 6 Using NPV Rule for the project – With Laminated Electrodes 6 Calculations of Beta 7 Debt/Equity ratio 7 Monte Carlo Analysis 7 For the Unlaminated factory 7 Recommendations 8 Exhibits 9 Exhibit 1: Using NPV Rule for the project – Without Laminated Electrodes (Full Table) 9 Exhibit 2: Using NPV Rule for the project – With Laminated Electrodes (Full Table) 10
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Capital Budget Recommendation Guillermo Furniture Overview Guillermo Navalez is an owner of a small furniture manufacturing company near his home‚ Sonora‚ Mexico. Sonora offers mild weather‚ beautiful scenery‚ and inexpensive housing. Guillermo is the largest manufacturer of furniture in his area where the supply of timber for tables and chairs is easily accessible due to the nature of resources (University of Phoenix‚ 2010). Labor is also inexpensive and Guillermo was making profit up until
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Chapter 9 Cost of Capital 1. What is the WACC? a. Weighted Average Cost of Capital- most firms employ different types of capital‚ and because of their differences in risk‚ the difference securities have different required rates of return. Typically=debt‚ preferred stock and common equity. 2. What precautions must we take when measuring the WACC to use for capital budgeting decisions (future investment)? b. The company’s current and recent past book and market value structures
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regularly overstated. Est. Time: 01 - 05 2. 3. a. Analysis of how project profitability and NPV change if different assumptions are made about sales‚ cost‚ and other key variables b. Project NPV is recalculated by changing several inputs to new‚ but consistent‚ values. c. Determines the level of future sales at which project profitability or NPV equals zero. d. An extension of sensitivity analysis that explores all possible outcomes and weights
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