the required rate of return is 20 percent‚ conduct a discounted cash flow calculation to determine the NPV? Answer: - Referred (Exhibit 2.3) from the textbook. Year 1 Year 2 Year 3 Year 4 Year 5 Required ROI 20% Outflows -$50‚000 Inflows $15‚000 $25‚000 $30‚000 $20‚000 $15‚000 Total return in 5 years = $105‚000 NPV formula in Excel* = -$50‚000 + NPV (20%‚ $105‚000) NPV = $12‚895 5. You are the head of the project selection team at SIMSOX. Your team is considering three
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REPORT ON CAPESIZE PURCHASE FOR OCEAN CARRIERS Introduction The purpose of this report is to evaluate whether Ocean Carriers Inc. should immediately commission a new capesize carrier that would cost $39 million‚ and would be completed two years hence‚ in order to finalize a lease of the ship for a three-year period with a potential charterer in very good faith. The contrasting tax regulations between the two countries where the company locates its office‚ and the different cost-benefit circumstances
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order are: 1) NPV 2) MIRR 3) IRR 4) Profitability Index. For the purpose of this case‚ I have used those top four in addition to: 5)Payback period and 6) Discounted Payback Period. For the purpose of this case‚ the CFO has asked that the “four best” projects be ranked and recommended as to which the company should accept. These top four rankings are reflected with each of the six (6) quantitative ranking calculations below; however‚ if asked to select just one of the rankings‚ then NPV would be selected
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FIN 470 Exam1 - KEY 1. What is the primary disadvantage of the corporate form of organization? Name at least two advantages of corporate organization. The primary disadvantage of the corporate form is the double taxation to shareholders of distributed earnings and dividends. Some advantages include: limited liability‚ ease of transferability‚ ability to raise capital‚ and unlimited life. 2. Evaluate the following statement: Managers should not focus on the current stock value because doing
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FIN553 Advanced Coporate Finance Case Study: Penelope’s Personal Pocket Phones Group 2 Brian Erber‚ Jaime Carreno‚ Wenliang Zhang‚ Xue Liu (Introduction) Background info about the project. In order to evaluate the NPV of the first-generation phone (project) ignoring the possibility of investing in the second-generation phone (project)‚ we projected the free cash flows (FCF) of the first-generation phone through 2001 to 2006. The total FCF was calculated as EBIT plus deprecation
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year 1; $13‚795 in year 2; and $6‚388 in year 3. Therefore‚ NPV of this scenario is $8‚903.50 and IRR is 29%. On the other hand‚ licensing the artist’s music would result in cash flows of ($26‚371) in year 0; $36‚045 in year 1; $9‚790 in year 2; and $918 in year 3. Therefore‚ NPV of this scenario is $14‚269.98 and IRR is 61%. Based on these analyses alone‚ licensing Roscommon’s music is the most lucrative decision path to take. The NPV and IRR demonstrate that this path can produce double the
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Question: Budget acts as planning and monitoring tools. Critically evaluate. A budget is a financial plan for the future concerning the revenues and costs of a business. However‚ a budget is about much more than just financial numbers. Without a budget‚ the business owner is literally shooting in the dark when it comes to trying to plan expenditures for the business and match them to sales revenue. Budget is not only a plan of action for a business; it is also a tool for monitoring performance
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Solution to Case 23 Evaluating Project Risk It’s Better to Be Safe Than Sorry! Questions: 1. What seems to be wrong with the way the NPV of each project has been calculated? Indicate without any calculations‚ how Pete and John should go about recalculating the projects’ NPVs. The NPV of each project has been calculated by discounting the cash flows at the 8% before-tax cost of debt. This is incorrect. Since the company has debt‚ preferred stock and common
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importance to the recovery time. ii. The analysis of the IRR: The merit of this measurement is taking into account of the time value of the money and the term structure of the cash flow. It has strong links with NPV. We can easily see this correlation from its definition. NPV is an absolute value‚ but IRR is a relative value. So it can better reflect the efficiency of the
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Define working capital. What could happen if an organization neglected to manage its working capital? What techniques would you recommend for your organization in order to appropriately manage their working capital? Why? “ Working capital is defined as the difference between current assets and current liabilities” (SBA‚ 2013). It’s the total amount of cash or inventory that can quickly be converted into cash or assets in order to grow an organization. Working capital is calculated by subtracting
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