achieve company goals? This paper will explain what is‚ and how to calculate a weighted average cost of capital of Tesco Plc based on company’s balance sheet1 and cash flow statement.2 The second part will focus on a report on the Tesco’s cash flow over the two year period starting in 2005. In the last part essay will explain what discount rate Tesco Plc. should use when deciding on major investment projects. a) Calculate the company’s weighted average cost of capital and explain/justify your
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marginal tax rate is 35%‚ and its cost of capital is 10%. Based on this information you are to complete the following tasks. Prepare a statement showing the incremental cash flows for this project over an 8-year period. Calculate the Payback Period (P/B) and the NPV for the project. Based on your answer for question 2‚ do you think the project should be accepted? Why? Assume Superior has a P/B (payback) policy of not accepting projects with life of over three years. If the project
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Assignment questions Week 1 (AES case). For the first class‚ please prepare your answers to the following two questions on this case 1. Calculate the cost of capital for the 15 projects around the world (shown in Exhibit 7a) using a methodology that incorporates country risk and other types of risk that arise in international investments into each project’s cost of capital. ?levered = ?unlevered/(E/C) = ?unlevered/(1-(D/C)) both ?unlevered and D/C can be obtained from exhibit 7a.
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final selection of a farm by evaluating the results‚ strengths and weaknesses of four investment appraisal methods. The four investment appraisal methods used in this report are the Accounting Rate of Return (ARR)‚ payback period‚ Net Present Value (NPV) and Internal Rate of Return (IRR). The results of the four investment appraisal methods may not be similar because of differences in their approaches and calculations. Hence‚ it is beneficial to use more than one investment appraisal method and understand
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The weighted average cost of capital had previously been determined by Worldwide Paper Company to be 15%‚ however‚ this calculation was calculated using an outdated figure and was likely inaccurate for present day calculation. In order to properly calculate the cost of debt for Worldwide Paper Company‚ we calculated a new weighted average cost of capital using current market and company data. The formula for weighted average cost of capital‚ or WACC‚ is (% of debt on the company’s balance sheet multiplied
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Question1. NPV = FCF1/(1+WACC)+FCF2/(1+WACC)^2+FCF3/(1+WACC)^3+FCF4/(1+WACC)^4+FCF5/(1+WACC)^5 +FCFp‚ where FCF1…FCF5 are the free cash flows in years from 1999 to 2003. FCF = Cash flow from Operations – increase in net working capital requirement – capital expenditures‚ discounted by WACC. For example‚ in 1999 FCF1 = (7965 – 516 – 4938)/(1+0‚1) = 2283. Similarly‚ we calculate FCF2=2479‚ FCF3=2666‚ FCF4=3007‚ FCF5=3132. As we assume‚ that after 2003 the FCF will grow permanently by 4% by year
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l. In a 1‚050-1‚500-word memo‚ define‚ analyze‚ and interpret the answers to items (c) through (h). Present the rationale behind each item and why it supports your decision stated in item (i). Also‚ attempt to describe the relationship between NPV and IRR. (Hint: The key factor here is the discount rate used.) In this memo‚ explain how you would analyze projects differently if they
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Tri Star Lockheed 1. (A) The payback is 35‚000/5‚000= 7 years Computation of the NPV : 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
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Present Value (NPV) method to determine whether a project adds value to the organization‚ free cash flow is taken into consideration. Depreciation expense‚ a non-cash item‚ is to be added back to the operating profit after tax to give operating cash flow. Other expenses such as SG&A and fixed costs are to be included in operating cash flow calculation. Change in net working capital (current assets – current liabilities) and capital expenditure are added to the operating cash flow to calculate free cash
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financing‚ or other important considerations‚ such as the opportunity cost. Formula The formula to calculate payback period of a project depends on whether the cash flow per period from the project is even or uneven. In case they are even‚ the formula to calculate payback period is: Payback Period = Initial Investment Cash Inflow per Period When cash inflows are uneven‚ we need to calculate the cumulative net cash flow for each period and then use the following formula for payback period:
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