N04 HL P1 Q5 Payback Calculation Year Machine A $ Machine B $ 1 45‚000 25‚000 Part of 2 20‚000 (0.57 of 35‚000) 35‚000 Part of 3 - 25‚000 (0.45 of 55‚000) Investment 65‚000 85‚000 1 + 0.57 = 1.57 (Machine A has payback period of 1.57 years) 2 + 0.45 = 2.45 (Machine B has payback period of 2.45 years) Accounting Rate of Return Calculation Machine A $ Machine B $ Net Return 155‚000 205‚000 Total Return-Investment 155‚000 – 65‚000 = 90‚000 205‚000 – 85‚000 = 120‚000
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CONCEPT OF PRESENT VALUE SO IMPORTANT FOR CORPORATE FINANCE? The importance of concept of present value to the world of corporate finance is that present value calculations are widely used in business and economics to provide a means to compare cash flows at different times. Present Value’s definition and simplistic formula used for normal purchases‚ the concept’s importance to corporate finance and why present value is the very first topic taught in finance classes explain that present value is an
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on the market. 2. __________ assets generate net income to the economy and __________ assets define allocation of income among investors. A) Financial‚ financial B) Financial‚ real C) Real‚ financial D) Real‚ real 3. Asset allocation refers to the __________. A) allocation of the investment portfolio across broad asset classes B) analysis of the value of securities C) choice of specific assets within
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1. If you deposit $10‚000 in a bank account that pays 10 percent interest annually‚ how much money will be in your account after 5 years? 2. What is the present value of a security that promises to pay you $5‚000 in 20 years? Assume that you can earn 7 percent if you were to invest in other securities of equal risk. 3. If you deposit money today into an account that pays 6.5 percent interest‚ how long will it take for you to double your money? 4. Your parents are planning to retire in 18
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liability. Investors in corporations have limited liability. They can lose their investment‚ but no more. Chapter 2 How to calculate Present values Question 6: Perpetuities An investment costs $1‚548 and pays $138 in perpetuity. If the interest rate is 9%‚ what is the NPV? Answer NPV = −1‚548 + 138/.09 = −14.67 (cost today plus the present value of the perpetuity). Question 7: Growing perpetuities A common stock will pay a cash dividend of $4 next year. After that‚ the dividends
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$34‚229.07 Therefore the total cost today of your children’s college expense will be the addition of the 2 = $72‚326.88 This is the present value of my annual savings‚ which are an annuity‚ so to get the amount I am supposed to save each year would be: PV=72‚326.88 N=15 I=5.5 CPT PMT = 7‚205.6 57. Calculating Annuity Values: Bilbo Baggins wants to save money to meet three objectives. First‚ he would like to be able to retire 30 years from now with retirement
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The internal rate of return (IRR) and the net present value (NPV) techniques are 2 investment decision tools that satisfy the 2 major criteria for the correct evaluation of capital projects. This criterion is that the techniques should incorporate the use of cash flows and the use of the time value of money. This makes them viable techniques for evaluating investment proposals. The Net Present Value is one of the techniques that are used by firms when evaluating which investment proposals to take
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Part I A. Present Value with Discount rate of 7% = 15000/(1+7%) = 15000/1.07 = $14‚018.69 Present Value with Discount rate of 4% = 15000/(1+4%) = 15000/1.04 = $14‚423.08 B. Account A - Present Value with Discount rate of 6% = 6500/(1+6%) = 6500/1.06 = $6‚132.08 Account B - Present Value with Discount rate of 6% = 12600/(1+6%)^2 = 12600/1.1236 = $11‚213.96 C. Present Value of Gold Mine 7% = 4900000/1.07 + 61‚000‚000/(1.07)^2 + 85‚000‚000/(1.07)^3 = 45‚794‚392.52 + 61‚000‚000/1.1449 + 85
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President‚ PAYBACK India Rijish Raghvan‚ Vice President and Head of Partner Management‚ PAYBACK India are the brand custodian for PAYBACK India and takes care of the revenue generation for the company through retention and acquisition of partners. Playing a key role in identifying new business lines to bring in profitability‚ Mr. Raghavan has over 2 decades of experience and his commitment to process excellence‚ execution and mentoring a large team of partner managers has enabled PAYBACK to emerge
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Hertz purchases the fleet from GM for $325‚000‚ and Hertz is able to issue $200‚000 of five year‚ 8% debt in order to finance the project. All principal will be repaid in one balloon payment at the end of the fifth year. What is the Adjusted Present Value (APV) of the project? 17.1 a. The maximum price that Hertz should be willing to pay for the fleet of cars with all-equity funding is the price that makes the NPV of the transaction equal to zero. NPV = -Purchase Price + PV[(1- TC
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