Store Proforma Analysis FIN 571 July 23‚ 2012 Abstract To sustain further improvements to a company’s bottom line and profitability‚ Guillermo’s Furniture is completing a pro-forma cash flow analysis that includes net present value (NPV)‚ internal rate return (IRR)‚ and weighted average cost control (WACC) analysis’. The plan is to incorporate a merger of a high tech furniture business‚ a broker distributer business‚ or the status quo manufacturing. The issues driving these analysis
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NPV‚ IRR‚ Profitability‚ & Payback Method Financial ratios have strengths and weaknesses‚ and one should be aware of these ratios to determine which is best in calculating the company’s financial health as well as the viability of a project. A company’s financial position can be assessed using NPV‚ IRR‚ profitability‚ and payback method; each important in itself to calculating the company’s financial stance. By definition‚ NPV is the net result of an investment
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CHAPTER 6 Making Investment Decisions with the Net Present Value Rule Answers to Problem Sets 1. a‚ b‚ d‚ g‚ h; c is a sunk cost. e is an overhead cost. f is not an incremental cash flow because depreciation is not a cash flow. i is a sunk cost. Est. Time: 01 - 05 2. Real cash flow = 100‚000/1.04 = $96‚154. The real discount rate is calculated as 1 + nominal rate / 1+ inflation rate − 1. Therefore‚ 1.08/1.04 − 1 = .03846. PV = [pic] Est
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bankruptcy‚ should any number of variables prove unfavorable to HPL. Moreover‚ the project relies heavily on a contract with a single large customer. Given the high level of risk and relatively low return associated with the project‚ despite a positive NPV based on pro forma cash flows‚ I would strongly recommend the firm consider alternative investment opportunities. Problem Being Examined Tucker Hansson owns Hansson Private Label‚ a 15-year-old private company that manufactures personal care products
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Capital Budgeting Part I PV= FV / (1+i)^y PV= present value‚ FV= future value‚ i= discount rate‚ and y= time. 1a) If the discount rate is 0%‚ what is the projects net present value? Year Cash Flow Discount Rate Discounted Cash Flow 0 -$400‚000 0% -$400‚000 1 $100‚000 0% $100‚000 2 $120‚000 0% $120‚000 3 $850‚000 0% $850‚000 Answer: The projects net present value is $670‚000 If the discount rate is 2%‚ what is the
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motors‚ would allow the company to remain in the leisure craft market and utilize its established selling network. To determine which of the two projects are financially more pleasing we need to use calculations to determine the value of the beta‚ WACC‚ NPV and IRR. Fist we want to calculate the net working capital (NWC). The NWC turnover ratio for this new operation was expected to be 6:1.( NWC turnover = Sales/ NWC = 6/ 1 = 3‚500‚000 / NWC. Thus‚ NWC = $ 583‚333.33); then we find the project outboard’s
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1.) Synthetic Resin PP=2+250‚000500‚000 =2.5 yrs. Epoxy Resin PP=1+200‚000400‚000 =1.5 yrs. ***Tim must explain to the board that Payback Method does not consider the cost of the capital (debt/equity) that the project will undertake which is reflected in the cash flow. It only states the length of time the company will be tied up in the project. He should also emphasize that the PBP method ignores the time value of money as well as the cash flows occuring after the payback period
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the above formula‚ A is the last period with a negative cumulative cash flow; B is the absolute value of cumulative cash flow at the end of the period A; C is the total cash flow during the period after A Net Present Value: Net present value (NPV) is used to
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1) Estimate the WACC that is appropriate for discounting the Collinsville plant’s incremental cash flows. You should estimate and present each component of the WACC separately‚ explaining briefly but clearly what assumptions you are making for each of them. In the same spirit‚ estimate the appropriate all-equity cost of capital for the APV-based valuation. WACC calculation. WACC = RD*(1-t)*D/(D+E)+RE* E/(D+E) Cost of equity We assume that risk free rate (Rf) equals rate of long-term Treasury
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that we have been under. Our analysis shows that the Zinser 351 project will yield a Net Present Value of $6‚474‚082.14 million and a discounted payback period of 5.6 years. This project not only brings a big enough payoff as demonstrated by the NPV‚ but also fits our timeline. The discounted payback period indicates that our investment will be realized before our company is not able to recover from our current financial struggles. The Zinser 351 is a project that this company must undertake
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