are those? Explain how each cash flow can be estimated. 3. When two projects have different project lives‚ is it o.k. to use NPVs of projects to choose the better one? Why or why not? If it is not o.k.‚ please explain how you can choose the better project. Chapter 13 1. Define NPV and IRR. Explain how decision can be made on projects‚ once you calculate NPV and IRR of
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investment. The net present value (NPV) and IRR of this project is -$945.68‚ and 11.49% respectively. As the project has negative NPV and the IRR is lower than the cost of capital‚ Rainbow should not purchase the machine. b) If Rainbow pays additional $500 per year‚ Rainbow can get a service contract that keeps the machine in new condition forever. As a result‚ the net cash flows per year would be $4‚500. The NPV of this project can be calculated as follows. NPV = Initial cost + Present Value of
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Return On investment CONTENTS INTRODUCTION 6 The ROI Concept 6 Simple ROI for Cash Flow and Investment Analysis 7 Competing Investments: ROI From Cash Flow Streams 7 ROI vs. NPV‚ IRR‚ and Payback Period 10 Other ROI Metrics 11 LIST OF TABLES Table 1 6 Table 2 7 Table 3 8 Table 4 8 Table 5 8 Table 6 ………………………………....................... 9 Table 7 ………………………………...................... 10 Return on Investment: What is ROI analysis? Return on Investment (ROI) analysis
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Company Memo This memo has been constructed for the purpose of reporting information the president of the company in reflection the purchasing of a supplier in the near future. It reflects information concerning Calculate Net Present (NPV)‚ Internal Rate of Return (IRR)‚ along with the payback of the investment opportunity. In this company memo the following information will be discussed: $500‚000 savings per year for the next 10 years. EEC’s cost of capital/14%. EEC’s purchase of the supplying
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Question 1 When a project ’s NPV exceeds zero‚ The project should be accepted without any further consideration‚ assuming we are confident that the cash flows and the required rate of return have been properly estimated. Question 2 Which of the following capital budgeting techniques does not adjust for the riskiness of the cash flows? Payback Question 3 A(n) ____ is the return on the best alternative use of an asset‚ the highest return that will not be earned if funds are not invested
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2. Analysis of NPV‚ IRR‚ and Payback Period To calculate this project’s NPV we had to find the respective cash flows in each year from the initial investment to the end of the five year forecast provided in Exhibit 2 at the end of the case. The initial investment for the building and all the equipment would take place in 2003 and production would begin in 2004. Therefore‚ our “Year 0” was 2003 and we calculated cash flows from operations from 2004 to 2009. To begin analyzing the case we started with
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The report also classifies the activity; arrange it in network and Gantt chart. From that‚ manager can arrange the labor force in an effective way. Finally‚ the researcher assesses the possibility of two different projects by two financial tools: IRR and NPV. Table of Contents Introduction This report was set up in order to provide the knowledge about decision making in a business. In business world‚ it is essential for manager to set up an operating plan for their company. They need to know
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CHAPTER 6‚ Case #1 BETHESDA MINING To analyze this project‚ we must calculate the incremental cash flows generated by the project. Since net working capital is built up ahead of sales‚ the initial cash flow depends in part on this cash outflow. So‚ we will begin by calculating sales. Each year‚ the company will sell 500‚000 tons under contract‚ and the rest on the spot market. The total sales revenue is the price per ton under contract times 500‚000 tons‚ plus the spot market sales times the
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Quantitative Business Methods Problem 1. A client invests $500‚000 in a bond fund project to earn 7% annually. Estimate the value of this investment after 10 years. Solution FVN = PV(1+r)N Here we have FV10= 500‚000 (1+0‚07)10 = 983 575‚68 Problem 2. For liquidity purposes a client keeps $100‚000 in a bank account. The bank quotes a stated annual interest rate of 7%. How much will your client have in this account at the end a. One year b. Two years Assuming no withdrawals (so all the
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IGNOU MBA MS - 04 Solved Assignments July 2011 Course Code : MS - 04 Course Title : Accounting and Finance for Managers Assignment Code : MS-04/SEM - I /2011 Coverage : All Blocks Note: Answer all the questions and send them to the Coordinator of the Study Centre you are attached with. 1. Discuss and explain the relevance of the following accounting concepts a) Business entity b) Money measurement c) Continuity d) Cost e) Accrual f) Conservatism g) Materiality h) Consistency
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