the internal and external conditions. This paper will focus on the differences and similarities when using the economic profit (EP) or the discounted cash flow (DCF) method when appraising an investment. When applied correctly‚ both valuation methods yield the same result; however‚ each model has certain benefits in practice. The DCF method uses future cash flows projections and discounts them with a suitable rate in order to calculate the present value of the investment. The economic profit input
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calculation of the Cost of Equity. Thus‚ the discounted rate of 7.58 percent used in figure 1.12 Appendix is likely to be precise. The total value of the firm is $4.73 billion. Nonetheless‚ in view of the probabilities of forecasting errors in the estimation of cash flows‚ the degree of precision does not guarantee an accurate result. Another drawback of the approach would be the failure to allow for the impacts of real options available to management on future cash flows. Hence‚ this method is considered as
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Entrepreneurial finance assignment 1 Problem 4.4. Introduction The CAPM model can be used to analyze the performance of a portfolio of investments. The model should be calculated by comparing the return of assets (Ri) minus the return of risk-free cash (Rf) of the fund against those numbers of a known index with historical data (Rm). With least-squares regression‚ a straight line has to be drawn through the points to finish the model. Alpha represents the point where the graph starts and beta the
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MW Petroleum Corporation Situation Overview: Amoco Corporation conducted an extensive review of its cost structure and profitability‚ leading to major restructurings to better focus on its core businesses. The result of this was a divestment of the middle section of its assets along the marginal curve. Thus‚ creating MW Petroleum Corporation – a new‚ free-standing exploration and production oil and gas company. MW was offered to a number of targeted international petroleum concerns‚ but the most
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rules for Antamina as part of the Peruvian privatization process. The government motivated more bidders to propose higher substantial investments in developing the Antamina property by allowing companies to submit two elements of the bid (the initial cash payment and initial investment commitment). However‚ the government made the bidding more complicated by giving the purchaser the option of either returning the property back to them‚ or re-negotiating a deal. This created value of delay for this real
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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 cash outflows from investment. The text stated that there
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the finance managers as it overcomes the limitations of profit maximization. The following arguments are in support of the superiority of wealth maximization over profit maximization: * Wealth maximization is based on the concept of cash flows. Cash flows are a reality and not based on any subjective interpretation. On the other hand‚ profit maximization is based on any subjective interpretation. On the other hand‚ profit maximization is based
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future cash flows until they are closer to being realized (time of sale). They also recognize expected future losses immediately. An accounting system of recording earnings presents certain flaws. The numbers often must be converted into something that makes economic sense. It is almost impossible to think that there is an absolutely correct set of numbers‚ as the investing process always comes down to making sound estimates of reality. Economic earnings reflect changes in the discounted present
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USA: MacGraw Hill/Irwin. • Ross‚ S.‚ Westerfield‚ R. & Jaffe‚ J. 2010‚ Corporate Finance‚ 9th ed. New York ‚ USA: MacGraw Hill/Irwin • Yahoo Finance‚ http://au.finance.yahoo.com/q/apr?s=BBG.AX Re = Rf + ((RM-Rf) Terminal Value equals Unlevered Cash Flow (UCF 2014) times (1 + Growth Rate) divided by WACC minus Growth Rate
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Valuation of AirThread Connections By: Chris Cruz Zach Hatoum Michael Peña Kevin Reilly Ali Zaidi American Cable Communications (ACC) 48.5 million homes had ACC cable passing through 24.1 million video subscribers 13.2 million high speed internet 4.6 million landline telephone Expected consolidated revenue of $30.9 billion (2007) Expected Net Income of $2.6 billion (2007) AirThread Connections One of the largest regional wireless companies in the United States Service more than
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