In order to capitalize on the expanding Indian domestic wine market projected to grow 25-30 percent per year and continue Sula Vineyard’s current growth trajectory‚ Sula Vineyard should consider improving its operational cash flows by efficient management of working capital which will help in the generation of additional profits. Equity funding through internal sources of capital such as retained earnings will reduce the risk of financing through long and short term loans where there could be high
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have personally thought of as a professional at my job. Should Caledonia focus on cash flows or accounting profits in making its capital-budgeting decisions? Should the company be interested in incremental cash flows‚ incremental profits‚ total free cash flows‚ or total profits? On this particular take‚ I believe we should focus on free cash flows rather than profits because the company itself can receive cash flow and reinvest it. The benefit or cost of this can be determined in due time. We can
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PV = $100 0.797 = $79.70 PV = $100 0.712 = $71.20 PV = $89.30 + $79.70 + $71.20 = $240.20 2. a. PV = $100 4.279 = $427.90 b. PV = $100 4.580 = $458.00 c. We can think of cash flows in this problem as being the difference between two separate streams of cash flows. The first stream is $100 per year received in years 1 through 12; the second is $100 per year paid in years 1 through 2. The PV of $100 received in years 1 to 12 is: PV = $100 [Annuity factor‚ 12
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STATE HOW BOTH COMPANIES SHOULD CLASSIFY THE LEASE. GIVE REASONS FOR YOUR ANSWER. Both Purple Ltd and Lemon Ltd should classify the lease as a finance lease based on the below. Present value of all future lease payments = ($8‚000 – $1‚000) X 3.8897 = $27‚228 Present value of guaranteed residual value = 50% X 7‚200 X 0.6499 Total present value = $27‚228 + $2‚340 of the Bulldozer The present value of the minimum lease payments is substantially all of the fair value of the leased
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Apartments project. The investment Strategy JPI tried to achieve at least a 150 basis point spread between the initial yield and the current market capitalization rates. JPI was seeking development opportunities which provide a going-in cap rate (or cash on cash return) of at least 10% on the total project cost. They had developed approximately 2800 apartment units and 1‚640 apartments. This record was in line their investment strategy of targeting a “holding period for development projects of two to
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in a consistent manner requires that project: I) cash flows be estimated in nominal terms II) cash flows be estimated in real terms III) accounting income be used: a. I only b. II only c. III only d. None of the above 4. Proper treatment of inflation in the NPV calculation involves: I) Discounting nominal cash flows using the nominal discount rate II) Discounting real cash flows using the real discount rate III) Discounting nominal cash flows using the real discount rates a. I only b. II
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have the lowest present value? Assume that the effective annual rate for all investments is the same and is greater than zero. 2. You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment? 3. Which of the following statements regarding a 20-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT? 4. Which of the following
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clear indicators of possible fraud was the company’s cash flow statement. The company experienced positive growth in its profits from the year 1996 through to the year 1998. However‚ a close analysis of the cash flow statement shows that the company had experienced negative figures of cash flow from both operating and investing activities and positive cash flow from financing activities which would not sufficiently offset the negative cash flows from operating and investing. It is therefore evident
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Convert all future and/or uncertain cash flows into a “present value”! The CAPM (we will cover its basics in this course) gives us a method to quantify our aversion to waiting (impatience) and our risk-aversion‚ by incorporating both into the discount rate. Notation and Terminology Time Line: displays sizes and timing of cash flows “Now” (“today”) is always time “zero”‚ i.e.‚ the end of period “zero”. So the first “future” cash flow accrues at time ..... We use the letter
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Caledonia focus on cash flows or accounting profits in making its capital-budgeting decisions? Should the company be interested in incremental cash flows‚ incremental profits‚ total free cash flows‚ or total profits? Caledonia should focus on cash flows‚ not accounting profits. Free cash flows are able to be reinvested‚ whereas accounting profits are shown when they are earned‚ not when the cash is actually received. The company should be interested in incremental after-tax cash flows. The incremental
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