Payback 3.49 years NPV $18‚994 IRR 14.03% a) What are the investment’s payback period‚ IRR‚ and NPV‚ assuming the firm’s WACC is 10%? SEE TABLE b) If the firm requires a payback period of less than 4 years‚ should this project be accepted? Be sure to justify your choice. Yes‚ since the payback of 3.49 is less than the maximum of 4 years. c) Based on the IRR and NPV rules‚ should this project be accepted? Be sure to justify your choice. Yes‚ since NPV > 0 and IRR > discount rate. d)
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Synthetic Resin IRR = 37% Epoxy Resin IRR = 43% IRR calculated using Excel Tim can convince the board that IRR measure can be misleading by explaining that it may result in multiple answers with nonconventional cash flows and it may lead to incorrect decisions in comparisons of mutually exclusive investments. 5) Synthetic Resin NPV: NPV = CI – CO NPV = [(350‚000)/(1 + 0.1)^1 + (400‚000)/(1+0.1)^2 + (500‚000)/(1 + 0.1)^3 + (650‚000)/(1 + 0.1)^4 + (700‚000)/(1 + 0.1)^5] – 1‚000‚000 NPV = 1‚903‚024
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Shapiro: Chapter 2: Capital-Budgeting Principles and Techniques QUESTIONS 1. a. What is the relationship between accounting income and economic profit? Answer: Accounting income is calculated by taking revenues and subtracting all cash and non-cash expenses (such as depreciation). Accounting income also often recognizes losses for tax purposes as well‚ even though the economic loss may have taken place at another time. Economic profit is the sum of the present values of all the cash flows
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Under what circumstances will the IRR and NPV rules lead to the same accept-reject decisions? When might they conflict? Using the IRR and NPV rules will always yield the same decision as long as two conditions are met: the project or investment’s cash flows are conventional and the project or investment is independent. If the initial cash flow is negative and all the subsequent cash flows are positive‚ the cash flows are said to be conventional. If at any point any of the 2nd or later cash flows
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New Heritage Doll Case Analysis 3/29/2013 Introduction Emily Harris is the Vice president of New Heritage Doll Company’s production division. In mid-September of 2010 she was trying to decide on project proposals for the company’s capital budget meeting in October. Of the proposals presented to her‚ two of them stood out based on their innovation and ability to strengthen the division’s product lines. The first project‚ Match My Doll Clothing Line Expansion (MMDC)‚ would extend the
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provide a basis for comparing several different projects. However‚ using this method would lead to a wrong decision because the ARR method uses income data rather than cash flow and it completely ignores the time value of money. 4.) Synthetic Resin IRR=350‚0001.3663+400‚000(1.3663)2+500‚000(1.3663)3+650‚000(1.3663)4+700‚000(1.3663)5-1‚000‚000= 36.63% Epoxy Resin
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depth. The project proposals (CPRs) are owned and presented by the real estate managers. There is a lot of pre-work that goes into the project before it’s presented. Typically 12-24 months of work is done to collect various data such as NPV‚ IRR‚ demographics‚ brand awareness‚ and sensitivity analysis. The sales projections are provided by the Research and Planning group and all project metrics are summarized into a standardized
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opportunities in order to decide which are worth undertaking. (Kidwell and Parrino‚ 2009) There are many techniques used in the process of capital budgeting. The most common methods are payback‚ discounted payback period‚ net present value (NPV)‚ internal rate of return (IRR)‚ accounting rate of return (ARR) and modified internal rate of return (MIRR). Payback Period The payback period is defined as the number of years that it will take a project to recover the initial investment of a company. This
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an equity joint venture in the city of Changchun.This proposal would be one of the first two green field equity joint venture with PepsiCo having control over both the board and day-today managmenet. PepsiCo uses capital budgeting tools such as NPV and IRR to systematically evaluate their investment project. Using this evaluation method Mr Hawaux‚ vice president of Finance for PepsiCo East Asia‚ was wondering whether this project would be profitable and if PepsiCo should proceed with the Changchun
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CASE REPORT OF FINANCIAL MANAGEMENT Diamond Chemicals PLC (B) Merseyside and Rotterdam Projects Table of content Key Issues 3 Analysis 3 Recommendations 8 Appendix 9 Appendix 1: Company Description 7 Appendix 2: Calculation on Merseyside Project Revision 7 Appendix 3: Calculation on Rotterdam Project without Right-of-way 7 KEY ISSUES The Diamond Chemical PLC as the producer of polypropylene has two production plants which are in Merseyside and Rotterdam. Both factories
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