Stryker’s headcount and payroll. 2. Use the projections provided in the case to compute incremental cash flows for the PCB project‚ as well as its NPV‚ IRR‚ and payback period. •Net Cash Flow = NI + Depreciation ± Change in WC •NPV=-6187178-7499321.151-3013841.152+21669101.153+30276381.154+35861491.155+76768611.156=1190527 •IRR=18.90% NPV=-6187178-749932(1+r)1-301384(1+r)2+2166910(1+r)3+3027638(1+r)4+3586149(1+r)5+7676861(1+r)6=0 •Payback Period=4.57 years -6187178-749932-301384+2166910+3027638=-2043946
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Chapter 17 Problem Questions 2‚4‚5 2. Find the NPV and PI of an annuity that pays $500 per year for eight years and costs $2‚500. Assume a discount rate of 6 percent. $500*8)*0.94^8-2‚500 ($4‚000)*0.6095-2‚500 2438-2‚500=-$62.00 Your NPV is -$62.00 PI: PV / Cost ($3104.90 / $2500) 1.24196 The PI is 1.24196. 4. Find the IRR and MIRR of a project if it has estimated cash flows
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CAPITAL BUDGETING MEANING OF CAPITAL BUDGETING Capital budgeting is the making of long term planning decision for investment fixed assets and their financing. Capital budgeting decision is concerned with current investment that will pay for itself and yield an acceptable rate of return over its life span. Hampton (1992) defines capital budgeting as the decision making process by which firms evaluate the purchase of major fixed assets‚ including buildings‚ equipment. It also covers decisions to
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significance of the simulation output and the assessment of the likelihood of project success (d) the measurement and interpretation of project value at risk Establish the potential economic return using IRR and modified IRR & advise on a projects return margin. Discuss merits of NPV & IRR. Discounted cash flow techniques are also extensively examined in the context of business valuations (business valuations are covered in chapters 9-12). Slow Fashions - 20 marks‚ June 09 Your
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$13‚795 in year 2; and $6‚388 in year 3. Therefore‚ NPV of this scenario is $8‚903.50 and IRR is 29%. On the other hand‚ licensing the artist’s music would result in cash flows of ($26‚371) in year 0; $36‚045 in year 1; $9‚790 in year 2; and $918 in year 3. Therefore‚ NPV of this scenario is $14‚269.98 and IRR is 61%. Based on these analyses alone‚ licensing Roscommon’s music is the most lucrative decision path to take. The NPV and IRR demonstrate that this path can produce double the return
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no difference on other items and when the investor gives much importance to the recovery time. ii. The analysis of the IRR: The merit of this measurement is taking into account of the time value of the money and the term structure of the cash flow. It has strong links with NPV. We can easily see this correlation from its definition. NPV is an absolute value‚ but IRR is a relative value. So it can better reflect the efficiency of the
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Fin 3010 Dr. Michello Summer 2007 Practice Problems Expected dividend yield Answer: a EASY i. If D1 = $2.00‚ g (which is constant) = 6%‚ and P0 = $40‚ what is the stock’s expected dividend yield for the coming year? a. 5.0% b. 6.0% c. 7.0% d. 8.0% e. 9.0% Expected return‚ dividend yield‚ and capital gains yield Answer: e EASY ii. If D1 = $2.00‚ g (which is constant) = 6%‚ and P0 = $40‚ what is the stock’s expected capital gains yield for the coming year? a. 5.2% b. 5.4%
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Capital Budgeting Analysis Project MBA 612 The General Capital Budgeting Process and how it is implemented within Organizations The general capital budgeting process is the tool by which an organization determines its choice of investments through analyzing and evaluating its cash in and out flows. The capital budget process is vital to the organizations mere existence. Capital budgeting decisions can mean the difference between the company’s
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For conventional cash flow‚ NPV takes the present value of all cash inflows over years 1 through n and subtracts from that the initial investment at time zero. The formula for the net present value of a project with conventional cash flows is: NPV = present value of cash inflows - initial investment 9-5 Acceptance criterion for the net present value method is if NPV > 0‚ accept; if NPV < 0‚ reject. If the firm undertakes projects with a positive NPV‚ the market value of the firm should
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ABSTRACT This report describes capital budgeting techniques such as NPV (The NPV of an investment is the difference between its market value and its cost‚ IRR (The IRR is the discount rate that makes the estimated NPV of an investment equal to zero. PAYBACK (The payback period is the length of time until the sum of an investment’s cash flows equals its cost)‚ discounted payback period (The discounted payback period is the length of time until the sum of an investment’s discounted cash flows equals
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