Contents preface 1 Contents 2 Part One – Value 4 Goals and governance of the firm 4 1. What is a corporation? 4 2. Separation of ownership and managementship 4 3. The role of the financial manager and the financial markets 4 How to calculate present values 5 1. Future values and present values 5 2. Looking for shortcuts – Perpetuities and annuities 6 3. More shortcuts – Growing perpetuities and annuities 7 4. How interests is paid and quoted 7 Valuing bonds 7 1. Using the present
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1. Is this a good property for Laflin to acquire? NPV From Exhibit 4 the NPV is about $1.5 million. There initial investment is $400‚000. Without included debt payments this appears attractive. However‚ the NPV should include the debt payments for a useful NPV. This reduces the NPV significantly. The investors double their money and the investment appears viable. Comps At a price of $18.80 per square foot ($1‚500‚000/80‚000 square feet)‚ the deal seems in line with recent sales in the
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platform? Net present Value of the Garage’s cash flow with Platform: NPV = £ 173‚614 Net present Value of the Garage’s cash flow with Platform: NPV = £ 38‚047 i. Should the garage manager buy the platform? Garage manager should buy the platform because‚ the productivity of the mechanics and profitability of the firm will increase as a result of the acquiring the platform. This will also positively affect to the NPV of the company cash flows and we can see it in above result. 2. The
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Deer Valley Lodge Ski Resort Katrina Edwards 14 December 2008 AIU Deer Valley Lodge Ski Resort Deer Valley Lodge wants to upgrade their facilities by adding five ski lifts. What we were first asked to do was to calculate the investment‚ which includes the lifts‚ installation‚ and preparation. It’ll cost $2 million for each lift and $1.3 million to prepare the slopes. The investment‚ what needs to be spent today is $3.3 million‚ you’ll get that figure by adding the costs of the lift and
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Worldwide Paper Case Study Incorporated in 2001‚ Worldwide Paper Company (WPC) is a corporation which is always focus on providing finest paper products to its clients and stakeholders. Headquartered in UAE‚ WPC’s most sales are distributed from the regions of Middle East‚ Asia‚ Africa and Levant. As a global company nowadays‚ the area of operation of WPC includes paper trading-commodity and conventional grads‚ indenting and custom order-commodity and conventional grades‚ merchanting and stock
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more appropriate that using a single firm-wide discount rate because the operations of the three divisions differ drastically. However‚ the company has to ensure that the company uses an appropriate discount rate for each division. Therefore‚ we calculate the appropriate cost of capital for Marriott as well as for each of the three divisions. A detailed analysis is presented about the appropriate calculation inputs for each of the three divisions and various assumptions‚ made while performing the
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expected to generate after tax cash flows of $10 million a year forever. Risk free rate is 3%‚ asset beta is 1.5‚ required return on market is 12%‚ cost of debt is 8%‚ annual interest costs related to project are $2 million and tax rate is 40%. Calculate the adjusted present value of the project. Solution Adjusted Present Value = Present Value of Cash Flows + Present Value of Tax Savings We need to find ungeared cost of equity which is 3% + 1.5*(12% − 3%) = 16.5%. Using this rate the present value
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CHAPTER 7‚ Case #1 BETHESDA MINING To analyze this project‚ we must calculate the incremental cash flows generated by the project. Since net working capital is built up ahead of sales‚ the initial cash flow depends in part on this cash outflow. So‚ we will begin by calculating sales. Each year‚ the company will sell 600‚000 tons under contract‚ and the rest on the spot market. The total sales revenue is the price per ton under contract times 600‚000 tons‚ plus the spot market sales times the
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Study Finance 450 I. Recommendations Aurora Textile Company is currently not in very good financial situation. Based on calculations that I made for the capital budgeting‚ my recommendation is to buy the new Zinser machine. After computing the NPV for the project it came out to be $10‚160‚579 over the period of 10 years. According on the analysis of the CFO of the company‚ Zinser would produce a finer- quality yarn that would be used for higher quality and higher margin products. Since Aurora
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required to respond to the following questions: 1. Investment appraisal should add value to the business entity. Critically evaluate this view. [40 %) 2. Calculate each project’s payback‚ NPV and IRR. (12 %) 3. For each of the above methods which projects should be selected and why? (6 %) 4. What would happen to the NPV if the cost of capital changed? (6 %) 5. How does a change in the cost of capital affect the
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