CASE 2 Cash Flow Estimation and Risk Analysis Robert Montoya‚ Inc. Robert Montoya‚ Inc.‚ is a leading producer of wine in the United States. The firm was founded in 1960 by Robert Montoya‚ an Air Force veteran who had spent several years in France both before and after World War II. This experience convinced him that California could produce wines that were as good as or better than the best France had to offer. Originally‚ Robert Montoya sold his wine to wholesalers for distribution
Premium Cash flow Net present value Operating cash flow
the net present value (NPV) is the sum of the discounted cash flows minus the original investment. One of the major problems with Pan-Europa is their existing low stock price. In order to increase their value‚ they must take up projects that increase their stock values‚ including those that would allow them to increase gross sales that have been stagnant over the years. The values presented in Exhibit 3 allow us to compare these projects based on various factors. Considering NPV as a factor‚ it is suggested
Premium Net present value
Uniform Annual Equivalent (UAE) - A Capital Budgeting Method. (The evaluation of two mutually exclusive projects with varying lives requires careful examination of the existence of the reinvestment opportunities at the end of the different economic lives of the projects. The current article deals with a method that may be adopted in situations wherein the level of investments‚ the life of the projects and cash inflows (or outflows) are unequal.) Risk is inherent in almost every business decisions
Premium Net present value Time value of money Investment
capital as 9.87%. We then used the cash flows to calculate the company’s NPV. We first calculated the NPV by using the 15% discount rate; by using that number we calculated a negative NPV of $2‚162‚760. We determined that the discount rate of 15% was out dated and insufficient. To calculate a more accurate NPV for the project‚ we decided to use the rate of 9.87% that we computed. Using this number we got the NPV of $577‚069. With the NPV of $577‚069 our conclusion is to accept this project as long as everything
Premium Net present value Cash flow Internal rate of return
Store Proforma Analysis FIN 571 July 23‚ 2012 Abstract To sustain further improvements to a company’s bottom line and profitability‚ Guillermo’s Furniture is completing a pro-forma cash flow analysis that includes net present value (NPV)‚ internal rate return (IRR)‚ and weighted average cost control (WACC) analysis’. The plan is to incorporate a merger of a high tech furniture business‚ a broker distributer business‚ or the status quo manufacturing. The issues driving these analysis
Premium Net present value Cash flow Weighted average cost of capital
NPV‚ IRR‚ Profitability‚ & Payback Method Financial ratios have strengths and weaknesses‚ and one should be aware of these ratios to determine which is best in calculating the company’s financial health as well as the viability of a project. A company’s financial position can be assessed using NPV‚ IRR‚ profitability‚ and payback method; each important in itself to calculating the company’s financial stance. By definition‚ NPV is the net result of an investment
Premium Net present value Ford Motor Company Finance
CHAPTER 6 Making Investment Decisions with the Net Present Value Rule Answers to Problem Sets 1. a‚ b‚ d‚ g‚ h; c is a sunk cost. e is an overhead cost. f is not an incremental cash flow because depreciation is not a cash flow. i is a sunk cost. Est. Time: 01 - 05 2. Real cash flow = 100‚000/1.04 = $96‚154. The real discount rate is calculated as 1 + nominal rate / 1+ inflation rate − 1. Therefore‚ 1.08/1.04 − 1 = .03846. PV = [pic] Est
Premium Net present value Depreciation
bankruptcy‚ should any number of variables prove unfavorable to HPL. Moreover‚ the project relies heavily on a contract with a single large customer. Given the high level of risk and relatively low return associated with the project‚ despite a positive NPV based on pro forma cash flows‚ I would strongly recommend the firm consider alternative investment opportunities. Problem Being Examined Tucker Hansson owns Hansson Private Label‚ a 15-year-old private company that manufactures personal care products
Premium Investment Net present value Generally Accepted Accounting Principles
Capital Budgeting Part I PV= FV / (1+i)^y PV= present value‚ FV= future value‚ i= discount rate‚ and y= time. 1a) If the discount rate is 0%‚ what is the projects net present value? Year Cash Flow Discount Rate Discounted Cash Flow 0 -$400‚000 0% -$400‚000 1 $100‚000 0% $100‚000 2 $120‚000 0% $120‚000 3 $850‚000 0% $850‚000 Answer: The projects net present value is $670‚000 If the discount rate is 2%‚ what is the
Premium Net present value Internal rate of return Rate of return
motors‚ would allow the company to remain in the leisure craft market and utilize its established selling network. To determine which of the two projects are financially more pleasing we need to use calculations to determine the value of the beta‚ WACC‚ NPV and IRR. Fist we want to calculate the net working capital (NWC). The NWC turnover ratio for this new operation was expected to be 6:1.( NWC turnover = Sales/ NWC = 6/ 1 = 3‚500‚000 / NWC. Thus‚ NWC = $ 583‚333.33); then we find the project outboard’s
Premium Weighted average cost of capital Net present value