Name #1 Name #2 Date Case #82 Prairie Winds Pasta – Capital Budgeting Methods & Cash Flow Estimation Summary of Case Prairie Winds Pasta is experiencing a high demand for pasta from its customers. The customers demand delivery with in one week with a maximum allowance of 10 days. The facility is running at full capacity - 24 hours a day. Question 1 Define the term “incremental cash flow.” Since the project will be financed in part by debt‚ should the cash flow statement
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Payback period is the time it takes to recoup your initial investment on a project based upon the future cash flows the project is expected to generate. In question one‚ the synthetic resin has a payback period of 2.50 years where as the epoxy resin has a payback period of 1.50 years‚ meaning the company will recoup its initial investment one year sooner with the epoxy resin than with the synthetic resin. If the company were determining which project to choose based solely on the payback period‚
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in the chapter even though it is the subject of Chapter 13. The knowledge is necessary to understand and motivate the capital budgeting models. It relates NPV - IRR procedures to the required rate of return idea‚ something with which students are already familiar. We explicitly tie NPV and IRR together by emphasizing that the IRR comes from the NPV equation as the interest rate that sets NPV=0. This helps to develop an overall understanding of both procedures. TEACHING OBJECTIVES
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internet‚ social media‚ online games‚ or other platforms or formats as defined in DepED Order No. 40‚ s. 2012; and Any other form of bullying as may be provided in the school’s child protection or anti-bullying policy‚ consistent with the Act and this IRR. “Social bullying” - any deliberate‚ repetitive and aggressive social behavior intended to hurt others or to belittle another individual or group. “Gender-based bullying” - any act that humiliates or excludes a person on the basis of perceived
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Telus: The Cost of Capital Telus needs to calculate the cost of capital from the variety of data given. The cost of capital is determined mostly by how the funds are used rather than where they were obtained from. It relies on the risk of investments Telus involves in‚ therefore‚ depending on cost of both equity of debt as described below. Also note that‚ even though the preferred shares are not attractive to issuers and may not get issued again‚ it is still on the company’s balance sheet and affect
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Managing Financial Principles and Techniques Assignment 2 Part 1: Financial Appraisal techniques Part 2: Forecasting Part 1-Financial Appraisal Techniques Task 1. NET PRESENT VALUE (NPV) Year PROJECT X £000 Project Y £ 000 Discount Factor X Y 0 -200 -200 -200 -200 1 35 218 0.909 31.815 198.162 2 80 10 0.826 66.08 8.26 3 90 10 0.751 67.59 7.51 4 75 4 0.683 51.225 2.732 5 20 3 0.621 12.42 1.863 229 219 1)NET PRESENT VALUE (NPV) X= 229-200=29 Y=219-200=19 PAYBACK
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Under what circumstances will the IRR and NPV rules lead to the same accept-reject decisions? When might they conflict? Using the IRR and NPV rules will always yield the same decision as long as two conditions are met: the project or investment’s cash flows are conventional and the project or investment is independent. If the initial cash flow is negative and all the subsequent cash flows are positive‚ the cash flows are said to be conventional. If at any point any of the 2nd or later cash flows
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investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. NPV = 12000/1.1 – 10000=909.09. Take it! IRR = 12000/10000 – 1 = 20% The cost of capital can increase by up to 10% without changing the decision 8. You are considering an investment in a clothes distributor. The company needs $100‚000 today and expects to repay you $120‚000 in a year from now. What is the IRR of this investment opportunity?
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some definite gains from investing in the vessel. 3. Internal Rate of Return Calculate the Internal Rate of Return for the investment in this new vessel. According to the IRR‚ should Ocean Carriers accept the project? Please discuss separately for the U.S. case and Hong Kong case. (Please see excel sheets) The IRR for the US
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15 NPV= -35‚000 + Σ 5‚000 / ( 1 + 12%)^ 15 i=1 NPV = $- 947. 67 Computation of the IRR : 15 0= -35‚000 + Σ 5‚000 / ( 1 + IRR)^ 15 i=1 IRR= 11.49% The NPV of this project is negative and the IRR is lower then the Cost of Capital (12%) Rainbow products shouldn’t go for it. (B) Based on the perpetuity formula we can compute the PV in this case
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