pays back rapidly probably has a positive NPV. The Net Present Value of the project compares how much the project cost with how much it brings in terms of today’s dollar value. We use a procedure called the discounted cash flow (DCF) valuation. We desire to invest in projects with positive Net Present Value to add value to the firm. We calculated the projects Net Present Value to be $99‚520‚047.53. This value was calculated by the following formula: NPV = -$750‚000‚000 = $140‚000‚000/1.12 +
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ABSTRACT This report describes capital budgeting techniques such as NPV (The NPV of an investment is the difference between its market value and its cost‚ IRR (The IRR is the discount rate that makes the estimated NPV of an investment equal to zero. PAYBACK (The payback period is the length of time until the sum of an investment’s cash flows equals its cost)‚ discounted payback period (The discounted payback period is the length of time until the sum of an investment’s discounted cash flows equals
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indicator that buying the vessels is not a good idea. The tax rate of 35% makes a lot of difference in determining this NPV. In our calculations we did assume a tax rate on the final sale of the vessel. If it were possible‚ or known‚ the tax rate on the salvage it might be more feasible to buy the vessel‚ and end up with a positive NPV. The effect of taxes on EBIT and thereby NPV is easily seen in our analysis numbers. As taxes remain steady and profits from operations falls‚ the prudence of the investment
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that errors in projected cash flows can lead to incorrect NPV estimates is called: A) Forecasting risk. B) Projection risk. C) Scenario risk. D) Monte Carlo risk. E) Accounting risk 2- An analysis of what happens to NPV estimates when we ask what-if questions is called: A) Forecasting analysis. B) Scenario analysis. C) Sensitivity analysis. D) Simulation analysis. E) Break-even analysis 3- An analysis of what happens to NPV estimates when only one variable is changed is called:
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Harris Case Analysis Objective: Should Harris invest into the shrimp processing plant? Issues: 1. Will this processing plant have a value today that is greater than or equal to the cost today? -If the NPV of the plant is greater than zero‚ then we should move forward with the investment. NPV Analysis: Value> Cost Value: PV: Value right now PV= forecast of future cash returns (FCR) -We used FCR to determine how much cash we get back and can deem the plan a good investment if we can bring
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Pinkerton Group Project Executive Overview The security guard services industry consisted of two segments: proprietary guards and contract guards. The historical growth was driven by companies realizing‚ that contracting guards allowed them gain operating flexibility instead of managing their own security personnel. In 1987 security guard services was a $10 billion industry growing at 6% a year. Due to the industry being very mature‚ fragmented‚ and price competitive there was an ongoing
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implements the suggested methodology‚ what will be the adjusted discount rate for the Red Oak project (USA) and the Lal Plr project (Pakistan)? Question 3 Calculate the effect that a revision of its cost of capital will have on the Lal Plr project’s NPV. Comment on the results. Case 3: Globalizing the Cost of Capital and Capital Budgeting at AES Q.1 At the AES corporation capital budgeting was historically a very simple method‚ that was used for all projects being examined‚ regardless of
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Assuming that this project is new information and is independent of other expectations about the company‚ calculate the effect of the new equipment on the value of the company and the effect on company’s stock price. Solution: NPV of the new printing equipment project = $750 million - $500 million = $250 million. Value of company prior to new equipment project=100 million shares x $45 per share = $4.5 billion.
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horizon‚ and ignored taxes and terminal value. What is the relative attractiveness of these three alternatives? During the period of 5 years (from 1994 to 1998)‚ if the discount rate is 20%‚ Waltham plant is the only one that has a positive amount in NPV. The total net present value of this plant is approximately $6.4 million‚ while the other two plants have a negative number (Santa Clara: negative $3‚882‚499; Greenfield: negative $29‚386‚827). The reason is that the cost to conduct the three plans
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Scenario Analysis ------------------------------------------------- Year | ------------------------------------------------- Scenario 1 | ------------------------------------------------- Scenario 2 | ------------------------------------------------- Scenario 3 | ------------------------------------------------- | ------------------------------------------------- 15% Better | ------------------------------------------------- Stated Forecast | -------------------------------------------------
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