Drexel University Worldwide Paper Company Group 2 Case Analysis Brian Burke‚ John Lafferty FIN 790 Winter 2015 Seminar in Finance Dr. Samuel H. Szewczyk Lebow School of Business February 9‚ 2015 Executive Summary: Blue Ridge Mill is a wood mill owned by Worldwide Paper Company and supplies wood pulp for the company for use in paper production. Blue Ridge Mill bought its wood supply from Shenandoah Mill’s excess production of shortwood that was processed from its longwood supplies. In 2006‚
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Questions For Critical Thinking 7 BUSI 620 Salvatore’s Chapter 14: a. Discussion Questions: 12 and 15. b. Problems: spreadsheet problems 1 and 2. Note: 1. Spreadsheet problem 1: Use table 14-4 as reference. 2. Spreadsheet problem 2: Use tables 14-5 and 14-6 as reference. Discussion Question 12: What is the rationale behind the minimax regret rule? What are some less formal and precise methods of dealing with uncertainty? When are these useful? The rationale behind the minimax regret
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with | |Easy to obtain data; Simple to |Accounting numbers‚ not cash flows | |(AAR) |average accounting return|the highest AAR | |calculate; Considers income over|and market values; | | |is greater than the | | |the life of the project |Ignores TVM; arbitrary benchmarks
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the spreadsheets in this chapter‚ develop a spreadsheet that summarizes this project’s cash flow‚ assuming a four-year useful life after the project is developed. Compute the present value of the cash flows‚ using an interest rate of 9%. What is the NPV for this project? What is the ROI for this project? What is the break-even point? Should this project be accepted by the approval committee? SOLUTION As the numbers indicate‚ this would not be an economically feasible project for a number of reasons
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from 10% of revenue minus previous year revenue put in the cash flow table. 2-4.Interest expense An annual interest expense is the item that does not has to be included into cash flow table for calculating NPV‚ IRR and PI. This kind of expense is the finance cost and has been used to calculate weighted average cost of capital which is 20% in this case. Furthermore the
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techniques: net present value (NPV)‚ internal rate of return (IRR)‚ modified IRR (MIRR)‚ profitability index (PI)‚ payback and discounted payback. Each approach provides a different piece of information‚ so it is better to look at all of them when evaluating projects. Each one of them has it’s own strengths and weaknesses‚ which may help us to understand each project return liquidity and risk. Financial Theory: Six capital budgeting decision criteria are used in this case: NPV‚ IRR‚ MIRR‚ PI‚ payback
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FINANCIAL MANAGEMENT: CAPITAL BUDGETING MINI CASE 1 CAPITAL BUDGETING (MINI CASE) QUESTION A What is capital budgeting? Solution: Capital budgeting is a required managerial tool. One duty of a financial manager is to choose investments with satisfactory cash flows and rates of return. Therefore‚ a financial manager must be able to decide whether an investment is worth undertaking and be able to choose intelligently between two or more alternatives. To do this‚ a sound procedure to evaluate
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called Net Present Value (NPV). Assuming you will be maximizing the shareholders wealth‚ when calculating the NPV‚ the project with the positive outcome will be the project that should be pursued. In capital budgeting‚ the profitability index (PI) measures the dollar return for the amount invested. Hence‚ PI is useful for capital rationing (Ross‚ et al‚ 2005‚ p. 14). The investment in net working capital is an important part of any capital budgeting analysis. NPV calculates all cash flows rather than
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C. George (Controls) Ltd manufactures a thermostat that can be used in a range of kitchen appliances. The manufacturing process is‚ at present‚ semi-automated. The equipment used cost £540‚000 and has a carrying amount of £300‚000. Demand for the product has been fairly stable and output has been maintained at 50‚000 units a year in recent years. The following data‚ based on the current level of output‚ have been prepared in respect of the product: Using existing equipment Per unit
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Aswath Damodaran equity risk premium in the US in 1979 was 6.45%‚ thus Rm – Rf = 6.45%. We will estimate beta equity using data of comparable firms‚ focusing on production only sodium chlorate: Brunswick Chemical and Sothern Chemicals. To calculate beta asset we’ll use information about beta equity and equity-to-value ratio. As well we assume that debt beta equals zero: To adjust beta in accordance with project we assume that in the long-run Dixon will maintain its target debt-to-capital
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