Paperco is what is the Net Present Value (NPV) of replacing its existing mechanical drying equipment with the more efficient equipment from Pressco‚ assuming (1) the rumored tax legislation is enacted; (2) Paperco fails to sign the contract in time to receive the investment tax credit; and (3) the equipment is installed in December 1986. II: General Framework for Financial Analysis: “Net Present Value (NPV) is a method of ranking investment proposals using the NPV‚ which is equal to the present value
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to apply the APV approach correctly and few candidates used an ungeared cost of equity in the NPV base calculation. Question Five was generally well answered with most candidates being able to make a reasonable attempt at the NPV calculations and draw basic conclusions from the results. However‚ few were able either to calculate appropriate PIs based on rationed cash flows‚ or to “stand back” from the NPV and PI results and use these to help identify the best overall combination of projects. In the
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comparable to one another‚ I would calculate the net present value of each press using the annual savings as the cash flows. In order to figure out what the proper cash flows are‚ I would find the depreciation of the machine for each year using the MACRS table and subtract it from the yearly cash flow (cash savings). I would then multiply the resulting number by (1 – tax rate)‚ and add back the depreciation to the cash flow after taxes. A better method than NPV to use for unequal lives is the equivalent
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Chapter 11: 1. Calculate payments on a loan. 2. Understand the concept and advantage of a common size measurement. 3. Calculate expected rate of return given the probability of an outcome. 4. Given situational facts‚ compute present and future value. 5. Given business facts‚ calculate the return on investment. 6. Given investment details‚ calculate how Iong an initial investment was growing at a certain interest rate. 7. Given the probability of an outcome‚ calculate the expected return/rate
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2%. Annualized standard deviation of Malaysian stock index = 35%. Annualized standard deviation of Malaysian U.S. dollar-denominated 10-year government bond = 26%. Project beta = 1.27. Expected market return = 12.5%. Risk-free rate = 5.3%. Calculate the country risk premium and the cost of equity for Omega’s Malaysian project. Solution: CRP=[0.09-.052][.35/.26]=0.05115 Cost of equity = 0.053+1.27[.125-.053+.05115]=0.2094 OR 20.94% Q#02: Hamad and co. is investing PKR 500 million in new printing
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flows 1 35‚300 2 46‚200 3 50‚000 4 22‚620 5 15‚100 6 5‚200 7 11‚740 8 89‚300 a) Calculate the Net Present Value (NPV) of the project. Should the firm accept or reject the project based on the NPV criteria? b) Calculate the Internal Rate of Return (IRR) of the project. Should the firm accept or reject the project based on the IRR criteria? c) Calculate the Profitability Index (PI) of the project. Should the firm accept or reject the project based on the PI criteria
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2. Analysis of NPV‚ IRR‚ and Payback Period To calculate this project’s NPV we had to find the respective cash flows in each year from the initial investment to the end of the five year forecast provided in Exhibit 2 at the end of the case. The initial investment for the building and all the equipment would take place in 2003 and production would begin in 2004. Therefore‚ our “Year 0” was 2003 and we calculated cash flows from operations from 2004 to 2009. To begin analyzing the case we started with
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Cross-Border Valuation Question 1 There are two ways to compute the projects NPV. The first approach is to calculate it in Mexican Pesos and then change the resulting figure into Euros at the spot rate of MXN15.99/EUR. Note that the discount rate that we have used was the yield on the long-term peso-denominated corporate bonds. Below is the screenshot showing how we have done this. Computing NPV in Mexican Pesos (resulting NPV in Euros is 138‚902) Question 2 The second approach is to transfer each
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44% 26.48% 22.4% Do you think the CAPM model is an appropriate way to calculate the cost of equity for these projects? Why or why not. The CAMP model is an appropriate way to calculate the cost of equity for these projects because of the information provided. The information provided is the beta‚ the risk-free rate‚ and market risk premium Which‚ if any‚ of the projects are unacceptable and why? Include on ONE graph the NPV profile for each project. Project D is unacceptable Rank the projects
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Project Analysis Marko Hartmann‚ 2010-10-15 Indroduction Most companies prepare each year a list of investment projects planned for the next coming year: The annual capital budget. However‚ being in the list of investments proposals not mean automatic go ahead with this project. Managers have to ask themselves what makes a project tick‚ what are the main uncertainties and how can you recognize these at an early stage. Therefore‚ we learn to use different kinds of analysis –methods like sensitive
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