Project Analysis Marko Hartmann‚ 2010-10-15 Indroduction Most companies prepare each year a list of investment projects planned for the next coming year: The annual capital budget. However‚ being in the list of investments proposals not mean automatic go ahead with this project. Managers have to ask themselves what makes a project tick‚ what are the main uncertainties and how can you recognize these at an early stage. Therefore‚ we learn to use different kinds of analysis –methods like sensitive
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FIN515 Homework 5 Problem 10-8: NPVs‚ IRRs‚ and MIRRs for Independent Projects Edelman Engineering is considering including two pieces of equipment‚ a truck and an overhead pulley system‚ in this year’s capital budget. The projects are independent. The cash outlay for the truck is $17‚100 and that for the pulley system is $22‚430. The firm’s cost of capital is 14%. After-tax cash flows‚ including depreciation‚ are as follows: Year | Truck | Pulley | 1 | $5‚100 | $7‚500 | 2 | 5‚100 |
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The Warehouse Facility Consolidation project is aim to improve the NH’s warehouse facilities and can save the company’s operating costs as well as increase the shipping speed. This project is in retail division with an NPV of 2.29‚ an IRR of 13.56%‚ and a payback period of 8.23 years and a payback index of 0.31. Also‚ this project was considered as a medium risk project with 9.25% discount rate. Expansion of Mail-order Catalog Business to Asia is a retail division project
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1. Calculate the Payback Period of each project. Explain what argument Tim should make to show that the Payback Period is not appropriate in this case. Answer : Year Synthetic Resin Epoxy Resin Cash Flows Cumulative Cash Flows Cash Flows Cumulative Cash Flows 0 -$1‚000‚000 -$1‚000‚000 -$800‚000 -$800‚000 1 $350‚000 -$650‚000 $600‚000 -$200‚000 2 $400‚000 -$250‚000 $400‚000 $200‚000 3 $500‚000 $250‚000 $300‚000 $500‚000 4 $650‚000 $900‚000 $200‚000 $700‚000 5 $700‚000 $1‚600‚000 $200‚000
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Memorandum To: CEO‚ Ocean Carriers Re: Ocean Carriers Capital Budgeting Mary Linn‚ Vice President of Finance‚ has been approached by a potential customer with a proposed lease of a ship for a three-year period‚ beginning in early 2003. The terms are very attractive but we currently do not have a ship that meets this customer’s needs. Ms. Linn has asked Group 4 to research three proposed scenarios to determine whether or not commissioning a new capesize carrier for this customer will
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PHUKET BEACH HOTEL: VALUING MUTUALLY EXCLUSIVE PROJECTS I. STATEMENT OF THE PROBLEM This is an assessment of the different costs and benefits of two mutually exclusive capital projects involving the use of an underutilized space located on the second floor of the main building of Phuket Beach Hotel (PBH). The first project‚ Planet Karaoke Pub (PKP) offered to sign a four-year lease agreement with (PBH) while the second project‚ Beach Karaoke Pub (BKP)‚ is a pub the PBH itself‚ plans to put
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000 3 18‚000 19‚000 4 16‚000 14‚000 5 19‚000 15‚000 6 14‚000 13‚000 Evaluate the above proposals according to: 1. Pay Back Period. 2. Accounting Rate of Return (ARR) 3. Net present value method (NPV) Proposal A is better than B‚ because ARR and NPV are higher than Proposal B 2. There are two Proposals. Proposal A and Proposal B. Proposal A costs $ 80‚000 and Proposal B costs $ 100‚000. The discount rate is 10%. The cash flows before depreciation
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carts using its own funds and we calculate the NPV @ 8%/ year‚ and the second scenario is that RCGB purchases the carts using borrowed money @ 8%‚ payable in 5 years (amortization schedule shown in Question 1). First scenario: RCGB uses own funds to purchase the carts. In this case‚ by comparing the NPV of the Purchase option versus the Lease option (see calculations below)‚ we can see that the NPV (@ 8%) of the Lease option is higher by $9‚826 than the NPV of the Purchase option. Even the tax shield
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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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Name #1 Name #2 Date Case #82 Prairie Winds Pasta – Capital Budgeting Methods & Cash Flow Estimation Summary of Case Prairie Winds Pasta is experiencing a high demand for pasta from its customers. The customers demand delivery with in one week with a maximum allowance of 10 days. The facility is running at full capacity - 24 hours a day. Question 1 Define the term “incremental cash flow.” Since the project will be financed in part by debt‚ should the cash flow statement
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