putting together the information he had collected on the proposed Changchun Bottling joint venture • in order to analyze the financial profitability ( capital expenditure analysis) of the project using net present value (NPV) and internal rate of return (IRR). Joint Ventures in China • Before 1993‚ – “cooperative joint venture”(CJV): the amount of capital injected in to the business did not necessarily equal the amount of profit-sharing • After 1993: • “Equity joint venture”: The profit would be distributed
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2013 Table of Content ABSTRACT 3 INTRODUCTION 4 Importance of Investment Appraisal for Business Entities 5 Calculations of NPV‚ IRR and Payback Period 5 Selection of Projects 8 Changes in the NPV with cost of capital 8 Changes in the IRR with cost of capital 9 Difference of sensitivity between Long-term and Short term NPV 9 NPV versus IRR 9 Conclusion 10 References 11 ABSTRACT This paper covers the implementation of three investment appraisal methods. Initially‚ importance
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b. What is the project’s DPP? c. What is the project’s NPV? d. What is the project’s IRR? a) PP = 52‚125/12‚000 = 4.34 b) 52‚125 – 12‚000/1.12 – 12‚000/1.12^2 – 12‚000/1.12^3 – 12‚000/1.12^4 – 12‚000/1.12^5 – 12‚000/1.12^6 = 2788 PV (7) = 12000/1.12^7 = 5428 DPP = 6 + 2788/5428 = 6.5 years c) NPV = 12‚000*[(1-1/(1+0.12)^8]/0.12 – 52‚125 = 7486.7 d) 12‚000 * [1-1/(1+IRR)^8]/IRR – 52‚125 = 0 => IRR = 16% Exercise 2: You are a financial analyst for the Hittle Company‚ and the company
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1. Explain the inputs into 1) the net initial investment outlay at year 0‚ the initial investment $200‚000 which include taxes and delivery‚ and the cost to install the equipment $12‚500. The total net cost $212‚500. 2) The depreciation tax savings in each year of the projects economic life‚ this will show how much the tax savings will be depreciated each year using the MACRS method 3) the projects incremental cash flows? This shows the company profit for each of the eight years. Net Cost MACRS
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points | | | Assume that the economy is in a mild recession‚ and as a result interest rates and money costs generally are relatively low. The WACC for two mutually exclusive projects that are being considered is 8%. Project S has an IRR of 20% while Project L ’s IRR is 15%. The projects have the same NPV at the 8% current WACC. However‚ you believe that the economy is about to recover‚ and money costs and thus your WACC will also increase. You also think that the projects will not be funded until
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accepting any project If the project is Technically Feasible‚ Commercially Viable‚ Financially viable. For evaluation of Financial Viability‚ we need to employ any of the following methods: 1. Net Present Value (NPV) 2. Internal Rate of Return (IRR) 3. Profitability Index (PI) Investment decisions are generally called capital budgeting decisions. One of the main important concepts in analyzing investment is the concept of time value of. The value of a present amount in the past‚ present and
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budgeting tools that financial managers and analysts use to evaluate the merits of an investment. Some of these techniques are quite intuitive and simple to use‚ such as payback analysis. Other techniques are a little more complex‚ such as the NPV and IRR approaches. In general‚ the more complex techniques provide more comprehensive evaluations‚ however‚ the simpler approaches often lead to the same value-maximizing decisions. Chapter 11 illustrates how to develop the capital budgeting cash flows that
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required IRR benchmark related to this project or to increase the expected IRR of the project. Due to decreasing margins on their recent construction projects RBH needs a project to bring their revenues and profits up for the upcoming years. RBH’s Southern California division (one of 15) and its VP Michael Borland have come up with a prospective project “The Platinum Pointe Land Deal” which has potentials to increase profits and revenues. The issue with it remains is that the project has a IRR of 21
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11.04.2010 Chapter 10. Mini Case Situation You have just graduated from the MBA program of a large university‚ and one of your favorite courses was "Today ’s Entrepreneurs." In fact‚ you enjoyed it so much you have decided you want to "be your own boss." While you were in the master ’s program‚ your grandfather died and left you $1 million to do with as you please. You are not an inventor‚ and you do not have a trade skill that you can market; however
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There are four key principles that Apple should take into concern when deciding their budgeting process. First‚ when making the decision‚ cash flows should be the main concern instead of the accounting income. Second‚ any cash flows will need to be discounted by the opportunity costs. Opportunity costs are the amount of cash flows that will lose by undertaking the project under analysis. Third‚ according to the time value of money‚ the cash flows received earlier is preferable to firm. In other words
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