aggressive‚ and unrealistic but‚ others considered it realistic. Kimi Ford’s problem Kimi Ford could not get a clear idea of whether to buy Nike’s shares. The opinions from the analysts of the industry were mixed‚ which prompted her to do a discounted cash flow analysis. However‚ she was uncertain about the cost of capital to be used for this analysis. She asked her assistant‚ Joanna Cohen‚ to estimate Nike’s cost of capital. Below is what Joanna did and our comments on it. Our Views on Joanna’s
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shareholder’s objective; get good return and safety of their capital. If profit maximization is an objective of a business‚ wealth maximization is the tools to maintain the objectives. Wealth equals to present value of cash flows substracted by cost. Since wealth maximization is based on cash flow‚ it can avoids any ambiguity in accounting the profit. While profit maximization is based on profit‚ it is kind of hazy. There are many kind of profit It can be gross profit‚ net profit‚ before the tax profit‚
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of action and theinvestment required to achieve the expected benefits. Gross present worth involves the capitalised value of the expected benefits.This value is discounted a some rate‚thisrate depends on the certainty or uncertainty factor of the expected benefits. The Wealth Maximization approach is concerned with theamount of cash flow generated by a course of action rather than the profits. Any course of action that has net present worth above zero or in other words‚creates wealth should be
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Case #22 Victoria Chemicals Synopsis and Objectives go/no-go decision 1. The identification of relevant cash flows; in particular‚ the treatment of: a. sunk costs b. cash flows obtained by cannibalizing another activity within the firm c. exploitation of excess transportation capacity d. corporate overhead allocations e. cash flows of unrelated projects f. inflation. 2. The critical assessment of a capital-investment evaluation system
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not. The additional EPS in this capital-expenditure will be approximately 0.1005. This means that the impact is positive. Second is the payback time. Thus‚ how long time it will take to amortize the initial project outlay by calculating the free cash flow. For engineering efficiency projects‚ it should be within six years. This
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| | ECONM2021Cases in Financial Management | THE TIMKEN COMPANY | (Word Count: 4000) | Candidate Nos.380843767942568 | | Executive Summary The Timken Company – a leader in the bearing industry‚ is considering acquiring the Torrington Company from Ingersoll-Rand. Torrington – an engineering solutions segment of the Ingersoll-Rand. The main motive of acquisition is to enhance Timken’s market share and product base. Operating synergies are highly expected from this merger with 80 million
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A) There are two potential sources of cash flows from owning a stock. B) An investor will be willing to pay a price today for a share of stock up to the point that this transaction has a zero NPV. C) An investor might generate cash by choosing to sell the shares at some future date. D) Because the cash flows from stock are known with certainty‚ we can discount them using the risk-free interest rate. Answer: D Explanation: A) B) C) D) Because these cash flows are risky‚ we cannot discount them using
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1. Which of the following entities may not use the cash method of accounting? Answer: A C corporation that is substantially owned by its employees and whose business is selling goods with annual gross receipts in excess of $5 million for all tax years since its inception. Explain your answer! The corporation in this question could not apply the cash method due to the fact they have in excess of $5 million average in gross receipts annually. The exception to this would be if it was a personal service
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following: (1) Relocating and modernizing the tank car unloading areas‚ which would allow the process flow to be streamlined; (2) refurbishing the polymerization tank to achieve higher pressures thus greater throughput; and (3) renovating the compounding plant to increase extrusion throughput and obtain energy savings. The Plan would correct the Old plant design that would save energy and improve process flow. It would cost Merseyside $7million and the plant would have to be shut down for 60 days. Since
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from the market if I decide to take my company public?” So‚ whatever the purpose is (acquisitions‚ private equity‚ joint ventures‚ IPOs‚ etc.)‚ valuation remains the centre of the talks. The two most common valuation methodologies include (1) Discounted Cash Flows‚ and (2) Relative Valuation (Valuation Based on Multiples). Read on to know more… CA. Tapan Jindal (The author is a member of the Institute. He can be reached at eboard@icai.org) There is no one way to establish what a business is worth
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