According to Attrill and Mclaney‚ 2009‚ there are four (4) approaches to capital budgeting. The net present value (NPV) is one of such and is a summation of all discounted cash flows(Present Value) associated with whichever project(s) are undergoing appraisal. Every appraisal method have decision rules‚ examples include the Payback Period(PBP) which stipulates the approval of projects that pays back the initial investments within a specific period. For this method (Net Present Value) to be most
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Board has historically had a strong preference for using rates of return as its decision criteria. On occasions it has also used the payback period approach to decide between competing projects. However‚ Mike is convinced that the net present value (NPV) method is least flawed and when used correctly will always add the most value to a company’s wealth. After obtaining the cash flow projections for each project (see Tables 1 & 2)‚ and crunching out the numbers‚ Mike realizes that the hill is going
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exhibit 2) After calculating the FCF for all the projects‚ we got the IRR’s for each project. We got an IRR of 0% for project A‚ 32% for project B‚ 34% for project C‚ and 43% for project D. Similarly we got the NPV for each project using a WACC of 10% and 35%. Using the 10% WACC we got an NPV of -$1‚229‚980 for project A‚ and $3‚016‚880 for project B‚ and $5‚281‚910 for
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Assume today is June 1‚ 2009. Natasha Kingery is 30 years old and has a Bachelor of Science degree in computer science. She is currently employed as a Tier 2 field service representative for a telephony corporation located in Seattle‚ Washington‚ and earns‚ $38‚000 a year that she anticipates will grow at 3% per year. Natasha hopes to retire at age 65 and has just begun to think about the future. Natasha has $75‚000 that she recently inherited from her aunt. She invested this money in 10-year
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Bilal Al- Qureshi‚ Said Business School‚ University of Oxford 2010 American Chemical Corporation HBS Case Number: 9-290-102 Executive Summary The American Chemical Corporation (AMC) is a large‚ diversified chemical producer. In 1979‚ AMC was forced to issue a tender to sell a Sodium Chlorate plant‚ near Collinsville‚ Alabama. Dixon‚ a specialty chemicals company‚ was willing to purchase the aforementioned plant for $12m with the option to invest a further $2.25m on laminate technology. The
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return on the stock is 15%(APR)‚ what is the current value of the stock? 2. Here are the possible projects for a firm: A B C D E F G 5 4 5 1 2 7 8 Initial investment 1.5 –0.5 1 0.5 0.5 1 1 NPV The firm has only twenty million to invest. What is the maximum NPV that the company can obtain? 3. Stock A has an expected return of 20% and Stock B has an expected return of 12%. The risk of stock A as measured by the variance is three times that of stock B. If
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Bethesda Mining In order to decide whether our company should undertake the project‚ we should refer to the project’s NPV and IRR. NPV indicates the possible profit (net cash flow) which the project will yield in future‚ a positive NPV suggests that company can earn profit from the investment and vice versa. IRR is the discounted rate which makes the NPV of all cash flows equal to zero‚ the greater the amount it exceeds the cost of capital (required rate of return)‚ the higher the net cash flow
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rejection. First of all‚ we need to mention which theoretical approach we considered to calculate the viability of the project. Without any surprise‚ we chose the NPV method. Conceptually‚ the Net Present Value is the present value of future cash flows minus the present value of the cost of the investment‚ which determines the exact cost or benefit of a decision. Consequently‚ the NPV rule states that if NPV is negative we should reject the project‚ or conversely‚ if is positive‚ we should accept
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interest rate she is currently earning on her inheritance by going to Yahoo Finance; 2. Create a timeline in Excel for her current situation as well as the certification program and MBA degree; 3. Calculate the present value of the salary differential for completing the certification program; 4. Calculate the present value of the salary differential for completing the MBA degree; 5) Based on your answers to Questions 3 and 4‚ what advice would you give to Natasha? Would your advice be different
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Notes: FIN 303 Spring 09‚ Part 7 – Capital Budgeting Professor James P. Dow‚ Jr. Part 7. Capital Budgeting What is Capital Budgeting? Nancy Garcia and Digital Solutions Digital Solutions‚ a software development house‚ is considering a number of new projects‚ including a joint venture with another company. Digital Solutions would provide the software expertise to do the development‚ while the other company‚ American Financial Consultants (AFC) would be responsible for the marketing.
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