the market value of your firm will fall by 30% of the amount to be raised. On the other hand‚ additional equity financing is required to fund an investment project that you believe has a positive NPV of $40 million. Should you proceed with the issue? Yes‚ because we should always invest in a positive NPV project‚ which maximizes the value of the firm. No. Under the Pecking Order‚ asymmetric information favors debt over equity issue since companies benefit from higher returns on equity and interest
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CASE: THE SOUND’S ALIVE COMPANY by Dr.Jack Yurkiewicz. Lubin School of Business‚ Pace University. Marissa Jones is the president and CEO of Sound’s Alive‚ a company that manufactures and sells a line of speakers‚ CD players‚ receivers‚ high-definition televisions‚ and other items geared for the home entertainment market. Respected throughout the industry for bringing many high-quality‚ innovative products to market‚ Marissa is considering adding a speaker system to her product line. The speaker
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focuses on quantifying the | | | | | strategic option value of developing the new line of lite frozen pizzas. | | | | | | | | | | | | | | | | | | | | The model develops incremental cash flow estimates‚ then calculates NPV‚ IRR‚ MIRR‚ ARR‚ and | | | | | payback for the lite athletic drink project. Also‚ this model contains a graph which can be used to | | | | | plot the sensitivity diagrams. You can change the data tables‚ then use them to change the graph
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Stock 11.7 Target Capital Structure 11.8 Marginal Cost of Capital 11.9 Factors Affecting the Cost of Capital 11.10 Payback Period 11.11 Net Present Value (NPV) and the Internal Rate of Return (IRR) 11.12 The NPV Profile 11.13 Cash Flow and NPV Applications 11.14 Advantages and Disadvantages of the NPV and IRR Methods 11.15 Applying NPV Analysis to Project Decisions 11.16 Comparing Projects With Unequal Lives 11.17 Types of Risk 11.18 Risk-Analysis Techniques 11.19 Security Market Line and
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balance sheet is $10‚000 in year 0‚ $12‚000 in year 1‚ $16‚000 in year 2 till the end of year 4. The working capital will be released at the end of the project. The marginal tax rate is 35% and the discount rate is 10%. a. Please calculate the NPV of the project? b. Please calculate the IRR of the project? c. Should KC buy the machine? 3. Hasnain’s Fashions can invest $6 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years‚ and expected
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sensitive to cost changes. NPV and IRR remains’ positive for all options of sensitivity analysis. Table 1. Sensitivity analysis (000 ’s) 2% (-2%) 4% 7% (+3%) 10% (6%) NPV IRR NPV IRR NPV IRR NPV IRR Gas $3‚302.70 34% $3‚772.49 35% $4‚577.42 38% $5‚521.53 40% Battery $2‚574.25 28% $3‚004.41 30% $2‚574.25 32% $4‚605.90 35% Bio Diesel $2‚812.34 29% $3‚249.17 31% $3‚997.59 33% $4‚875.44 36% The key findings are that when using the NPV model to evaluate the
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option expires‚ the less valuable the option will be‚ other things held constant. ____ 9. If a project’s NPV exceeds its IRR‚ then the project should be accepted. ____ 10. The NPV method’s assumption that cash inflows are reinvested at the cost of capital is more reasonable than the IRR’s assumption that cash flows are reinvested at the IRR. This is an important reason why the NPV method is generally preferred over the IRR method. Multiple Choice Identify the choice that best completes
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D. 1. 2. 3. 4. 5. 6. INVESTMENT APPRAISAL The nature of investment decisions and the appraisal process Non-discounted cash flow techniques Discounted cash flow techniques Allowing for inflation and taxation in DCF Adjusting for risk and uncertainty in investment appraisal Specific investment decisions (lease or buy; asset replacement‚ capital rationing) The Nature of Investment Decisions and the Appraisal Process What is an investment? An investment is any expenditure in the expectation of
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Present Value method. The initial outlay of cash to get my firm started is low which makes the risk low. Tech Buzzard will start as a part time venture out of my home with very little of my own capital investment to lose. Never-the-less‚ I will use NPV as the primary analytical tool but I will also look that the IRR and Profitability Index for a more informed view of the payback period. PAYBACK PERIOD RULE IS LIKE A MEAT CLEAVER I would not want a C-Section with a meat cleaver‚ nor would I
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A proposal to extend the ABC Gas Company Ltd’s gas distribution network to the NOIDA industrial cluster‚ about 40 km east of Delhi‚ at distance of about 20 kms from the ABC’s existing transmission line‚ is under the consideration of its CEO‚ Prerna Goyal. The NOIDA industrial cluster is dominated by the textiles industry including texturising‚ weaving‚ spinning and yarn units with over 2‚500 small and medium size units. The potential of gas consumption in these industries is mainly on account of
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