pays back rapidly probably has a positive NPV. The Net Present Value of the project compares how much the project cost with how much it brings in terms of today’s dollar value. We use a procedure called the discounted cash flow (DCF) valuation. We desire to invest in projects with positive Net Present Value to add value to the firm. We calculated the projects Net Present Value to be $99‚520‚047.53. This value was calculated by the following formula: NPV = -$750‚000‚000 = $140‚000‚000/1.12 +
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Payback period is the time it takes to recoup your initial investment on a project based upon the future cash flows the project is expected to generate. In question one‚ the synthetic resin has a payback period of 2.50 years where as the epoxy resin has a payback period of 1.50 years‚ meaning the company will recoup its initial investment one year sooner with the epoxy resin than with the synthetic resin. If the company were determining which project to choose based solely on the payback period‚
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PI‚ NPV‚ and IRR evaluation techniques. It illustrates the time disparity‚ size disparity‚ and life disparity problems and the appropriate approaches to the resolution of these problems. This case works well either as a homework problem coinciding with the introduction of project ranking and capital-rationing material or as an in-class problem lecture. DEGREE OF DIFFICULTY: Moderately Difficult Question Answers Although all methods might grant projects acceptable ratings‚ NPV‚ PI‚ and IRR will
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Assignment | Cost of Capital‚ Capital Budgeting and Financial Planning | Chapter(s) | 9‚ 10‚ 12 | Group Name | | Student Name(s) | | Date | | Instructions: HW Assignments will be uploaded to Kean Blackboard and must be accessed from there. You must work in groups where assigned (or independently if not assigned to groups) on homework assignments. Points are noted against each question. You are required to submit Home Work assignments electronically on Kean Blackboard using MS-Office
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returns and related risks. The analysis will include the necessary financial models NPV‚IRR and Sensitivity by calculating the discounted cash flows‚ but also take into consideration economic characteristics (PESTLE) as well as other driving forces in relevant to the mobile phone industry such as competition (Porter’s Five Forces ) 2 Recommendations (See Figures 1 & 2 for visual representation of NPV and IRR) The ethos of Sky-Blue’s business activities are based on technological advances and
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Corporate Finance Capital Budgeting Course Outline CAPITAL BUDGETING Course outline Key Principles in Capital Budgeting: Criteria for Investment Projects Net Pesent Value Internal Rate of Return Payback Profitability Index Finding Cash Flows Maria Ruiz 1 Financial Management Financial management is largely concerned with financing‚ dividend and investment decisions of the firm with some overall goal in mind. Corporate finance theory has developed around the goal of shareholder
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thu hồi dc vốn)? b. What is the project’s DPP? c. What is the project’s NPV? d. What is the project’s IRR? a) PP = 52‚125/12‚000 = 4.34 b) 52‚125 – 12‚000/1.12 – 12‚000/1.12^2 – 12‚000/1.12^3 – 12‚000/1.12^4 – 12‚000/1.12^5 – 12‚000/1.12^6 = 2788 PV (7) = 12000/1.12^7 = 5428 DPP = 6 + 2788/5428 = 6.5 years c) NPV = 12‚000*[(1-1/(1+0.12)^8]/0.12 – 52‚125 = 7486.7 d) 12‚000 * [1-1/(1+IRR)^8]/IRR – 52‚125 = 0 => IRR = 16% Exercise 2: You are a financial analyst for the Hittle Company
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(a) For Ranch Hand calculate NPV‚ IRR‚ MIRR‚ ARR‚ and payback period. (b) Based on the calculations in part (a)‚ make a recommendation to Anvil’s management about the introduction of Ranch Hand. 6.4 With respect to investment decisions‚ explain the terms: mutual exclusivity‚ replacement decisions‚ retirement decisions. 6.5 Discuss the difference in the usage of the terms ‘ asset replacement’ and ‘asset replication’. 6.6 The formula to arrive at an NPV for asset replication in perpetuity
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(1+r)n Rule 3: To move a CF back in time you must discount it PV= C/ (1+r)n Valuing Streams of CF NPV= ∑Cn/ (1+r)n Perpetuity Stream of equal CF that last forever PV= C/r Annuity A stream of CF that occur at regular intervals for N periods Growing Perpetuities Stream of CF that occur at regular intervals and grow at a constant rate forever (growing dividend) NPV= C/ r – g g= growth rate Growing Annuities PV= C x (1/(r-g)) (1-((1+g)/(1+r))N What if g>r
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the decision that Corporation B is the company that our company has decided to acquire with a $250‚000 initial outlay. We have conducted 5-year income cash flow projections. Our company determined the Net Present Value (NPV) as well at the investment’s internal rate of return (IRR). When making a decision to purchase or invest in a company‚ a decision maker needs all the necessary information to fully understand what he is investing in. Investing carries a significant risk‚ and once the investment
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