BMCF 5103 CORPORATE FINANCE Dr. Nguyen Thi Hoang Anh Lecture 1: An Introduction to Corporate Finance Contents What is finance? What is corporate finance? The balance-sheet model of the firm Capital budgeting Capitalstructure The firm and thefinancial markets Forms of business organisation The goals of a corporation Agency relationships: stockholders versusmanagers‚ stockholders versus creditors Managers’ actions to maximise stockholder wealth Financial management
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Scovanner accept? Be prepared to explain how each of the considerations that follow influenced your decision: Out of the 8 choices available‚ I would tell that Scovanner will accept NPV/IRR‚ Size of the project‚ Customer demographics‚ Brand‐awareness impact‚ Cannibalization of other stores’ sales‚ because‚ • NPV and IRR are two main things when coming to Captial Budgeting and the • size of the project‚ the higher the size‚ the maximum will be the returns and yes‚ it involves risk but the returns
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rate of return on both projects is 12 %. Year Project A Project B Project C 0 (RM100‚000) (RM200‚000) (RM100‚000) 1 70‚000 130‚000 75‚000 2 70‚000 130‚000 60‚000 a. Compute the profitability indices for each of the three projects. b. Compute the NPV for each of the three projects. c. Suppose these three projects are independent. Which project (s) should Anthony accept based on the profitability index rule? 9-3 Jojo is reviewing a project with an initial cash outflow of RM250‚000
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The estimated betas of Boeing against the S&P 500 and the NYSE composite index using 60 trading days data are 1.45 and 1.62 respectively. If the weighted average cost of capital (WACC) of this project could be lower than its internal rate of return (IRR) with the estimated beta of 1.62‚ the estimated beta of 1.45 would not cause the project to be rejected. Therefore‚ the analysis uses the estimated beta calculated against NYSE composites index‚ which is 1.62‚ to compute the WACC. Risk premium
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have received firm commitments for one of their products in development‚ with a market life of the next three years. In order to begin production‚ Dinky must purchase additional machinery and lease additional production facilities. We will use the NPV to determine whether or not initiating production is in the best interest of Dinky Company. Question 1: Calculate Dinky’s weighted average cost of capital using market weights for each financing component Due to the fact that Dinky Company is a levered
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the WACC will change both the NPV and the IRR. To find the MIRR‚ we first compound cash flows at the regular IRR to find the TV‚ and then we discount the TV at the WACC to find the PV. The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. However‚ the MIRR method assumes reinvestment at the MIRR itself. If two projects have the same cost‚ and if their NPV profiles cross in the upper right quadrant‚ then the project with the higher IRR probably has more of its cash
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lastly the prospective shareholder can choose to not invest in the project as a whole. In order to evaluate the profitability of the 7E7 project we are going to calculate the WACC of the project and then compare it to the stated IRR of 15.7%. While this calculation of IRR is subject to other risks such as the amount of units sold expected‚ we are going to assume 2‚500 units will be sold annually over the first 20 years. It is also assumed that over the next 20 years world economies will grow by 3
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Solutions Manual Fundamentals of Corporate Finance 9th edition Ross‚ Westerfield‚ and Jordan Updated 12-20-2008 CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concepts Review and Critical Thinking Questions 1. Capital budgeting (deciding whether to expand a manufacturing plant)‚ capital structure (deciding whether to issue new equity and use the proceeds to retire outstanding debt)‚ and working capital management (modifying the firm’s credit collection policy with its customers). Disadvantages:
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decisions. B case: either/or decision 1. The relevance of cash flows from assets that may be separable from the core project. 2. The classic crossover problem‚ in which project rankings disagree on the basis of net present value (NPV) and internal rate of return (IRR). 3. The assessment of real option value latent in managerial flexibility to change operating technologies. 4. The identification of some classic games or types of human behavior that can be counterproductive in the resource-allocation
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Unit 5 Assignment Charles Murphy GB-540 9-10 The earnings‚ dividends‚ and stock price of Shelby Inc. are expected to grow at 7% per year in the future. Shelby’s common stock sells for $23 per share‚ its last dividend was $2.00‚ and the company will pay a dividend of $2.14 at the end of the current year. a. Using discounted cash flow approach‚ what is the cost of equity? Using the formula of ks = [pic] + g‚ you would take the cost dividend($2.14) divided by the stock share price of
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