Question 1: 2D1-LS02 Which of the following items is not an example of a capital expenditure? A ventilation system upgrade for EPA compliance. Project bonuses paid to employees. Purchase of a new assembly machine that will cut labor and maintenance costs. Purchase of a new computer server for the research and development group. Long-term capital budget expenditures are often grouped in one of the following categories: new machines and equipment intended for expansion‚ replacement of existing
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management group in the decision making of the implementation of the new operating ASRS system‚ and we came out with the following financial information and data. CanGo started operating as a small company in 2006. In 2008 the company reported a net profit of $7‚000‚000 and $15‚000‚000 for the 2009. The company’s most profitable division has been its online book sale. Due to the fact that CanGo has been increasing its sales and revenue for more than 100%‚ the company has demonstrate that it is
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____________________________________________________________ _______________ 1. The difference between an investment ’s market value and its cost is called the: A. present value. B. net present value. C. capital value. D. cash flow. E. net income. 2. The payback period is the period of time it takes an investment to generate sufficient cash flows to: A. earn the required rate of return. B. produce the required net income. C. produce a yield equal to or greater than the market rate on similar investments. D. have
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project is worthwhile. One way an organization can determine its worth of a project is by using the valuation process. This process links risk and return to help estimate the worth (Gitman‚ 2009). According to Investopedia‚” market value is often different from book value because the market takes into account future growth potential.” This paper will show 6 different valuation models showing the market price of Berkshire Hathaway Inc.’s debt‚ if any‚ and equity. Along with the models this paper will
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is calculated by counting the number of years it will take to recover the cash invested in a project. 3. Net present value is the dollar amount of the change in the value of the firm as a result of undertaking the project. With non-mutually exclusive projects‚ the net present value and the internal rate of return methods will accept or reject the same project. The Net Present Value Method is a more conservative technique for selecting investment projects than the Internal Rate of Return method
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Annual Cost Savings 1 - 7 80000 3.605 288400 Initial Investment NOW -300000 1 -300000 Salvage Value 7 20000 0.279 5580 Net Present Value -6020 NPV B Item Years "Amt of Cash Flow" "20% FACTOR" "PV of Cash Flows" Annual Cost Savings 1 - 7 60000 3.605 216300 Initial Investment NOW -300000 1 -300000 Working Capital Released 7 300000 0.279 83700 Net Present Value 0 NPV A Item Years "Amt of Cash Flow" "20% FACTOR" "PV of Cash Flows" Annual Cost
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investment. PROJECT A Initial Investment: The amount of money a business invests in a capital investment project. It can be sourced from various means such as banks or shareholders funds. It is given as ₤115‚000 NO OF YEARS(YR) | NET CASH FLOW (NCF) | CUMMULATIVE NET CASH FLOW(CNCF) | 1 | 38‚000 | 38‚000 | 2 | 42‚000 | 80‚000 | 3 | 48‚000 | 128‚000 | 4 | 50‚000 | 178‚000 | 5 | 70‚000 | 248‚000 | Payback period = 2 + 115‚000 − 80‚000 48‚000
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are: * Profitability index * Net present value * Modified Internal Rate of Return * Equivalent annuity * Internal rate of return Profitability Index The profitability index is a technique of capital budgeting. This holds the relationship between the investment and a proposed project’s payoff. Mathematically the profitability index is given by the following formula: Profitability Index = (Present Value of future cash flows) / (Present Value of Initial investment The profitability
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and research development projects are worth pursuing. It is budget for major capital‚ or investment‚ expenditures.[1] Many formal methods are used in capital budgeting‚ including the techniques such as Accounting rate of return Net present value Profitability index Internal rate of return Modified internal rate of return Equivalent annuity These methods use the incremental cash flows from each potential investment‚ or project. Techniques based on accounting earnings
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Net Present Value Analysis. Use the following 5-step process in net present value analysis: Step 1. Select the discount rate. Step 2. Identify the costs/benefits to be considered in analysis. Step 3. Establish the timing of the costs/benefits. Step 4. Calculate net present value of each alternative. Step 5. Select the offer with the best net present value. This section will demonstrate the use of that 5-step process in two lease-purchase decision examples
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