the PV of the inflows the next year divided by the discount rate‚ which was given to us as 12%. Once NPVs were found for each individual sequel‚ we took the sum and divided it by the number of sequels‚ which is 99. This calculation led us to an NPV of -$3.38. Then we had to discount these values back 2 years to get an average NPV per sequel of -$2.69. We need to discount back 2 years because the NPV for our years 3 and 4 (for the film sequel) give us years 2 and 3‚ but we want years 0 and 1‚ so we
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and AMG could also choose to purchase the computers for the same lengths of time. In order to identify and document the financial strengths and weaknesses of each option‚ our team has forecasted the NPV for each scenario‚ including the lease versus buy for each term length. First‚ we calculate the NPV of purchasing all 7‚542 computers and their software for 24 months at $750 and $250‚ respectively. This therefore requires an initial investment of $ 7‚542‚000. Based on the different provisions required
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calculated the present value of the future Free Cash Flows until 2006. After that‚ based on the assumption that after 2006 CF would grow at 5%‚ we estimated the terminal value of the company. Finally‚ based on these assumptions‚ the NPV of the project would be: 1228‚485 2. What is the Internal Rate of Return (IRR) of this project? The internal rate of return is the rate that would make the net present value of the firm’s project equal to zero. In other words‚ the IRR is the
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and its revenues will grow at 2% per year for every year after that. a. Which investment has the higher IRR? a) Since IR is defined as the rate of return that makes the NPV = 0: Investment A: Setting NPV = $0‚ and solving for r $0 = [pic] [pic][pic] r = [pic] IRR = 20% Investment B: Setting NPV = $0‚ and solving for r $0 = [pic] [pic][pic] r -0.02 = [pic] r – 0.02 = 0.15 r = 0.15 + 0.02 IRR = 17% b. Which investment
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now. On the other hand‚ if the project being takes this year suffers from lose: firm might unable to take the second project one year from now. NPV method: There are few methods‚ which can be used to evaluate the iPhone project. Net present value method is one of the most prevailing methods to calculate and evaluate the project’s cash flow. The NPV of a project is the sum of the present values of all cash flow being generated under the condition of firm
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positive NPV. The overall capital available for new projects for the next year is $5 million. Which of the following statements about the capital budgeting process that Cynthia should employ is true? 1) Cynthia should rank the projects in increasing order of NPV and choose the highest ranked projects in order until the capital available is exhausted. 2) Cynthia
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the resulting $25‚517 NPV shown in Part 5 is called the base-case NPV. Now we ask a series of "what if" questions: "What if unit sales falls 30 percent below the most likely level?" In our sensitivity analysis we hold the other variables at their base case levels and then examine the situation when the key variables change. Each new calculated NPV is plotted on the graph in Part 6 to show how sensitive NPV is to changes in each variable. The table below outlines the NPV figures that we used to
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the NPV and IRR for the above two projects‚ assuming a 13% required rate of return. b. Discuss the ranking conflict. c. What decision should be made regarding these two projects? Answer: a. NPV of A = $211‚305 NPV of B = $401‚592.64 IRR of A = 16.33% IRR of B = 15.99% b. The later cash flow of B causes its lower IRR even though it has the higher NPV. c. B should be accepted because it is the mutually exclusive project with the highest positive NPV. Keywords: NPV‚ IRR
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recession‚ and as a result interest rates and money costs generally are relatively low. The WACC for two mutually exclusive projects that are being considered is 8%. Project S has an IRR of 20% while Project L ’s IRR is 15%. The projects have the same NPV at the 8% current WACC. However‚ you believe that the economy is about to recover‚ and money costs and thus your WACC will also increase. You also think that the projects will not be funded until the WACC has increased‚ and their cash flows will not
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Employer Intrusions. _Employment Law for Business_ (4th). New York: McGraw Hill. (Original work published 1995) Employee Handbook Company Policy Manual. (2006). In _NUPP Legal._ Retrieved September 8‚ 2006‚ from http://www.nupplegal.com/polhanman1.html Hansson‚ S. O.‚ Persson‚ A. J.‚ Jan 2003‚ Privacy at Work-Ethical Criteria‚ _Journal of Business Ethics_‚ Part 1‚ Vol. 42‚ Issue 1‚ p. 59-70‚ 12p‚ Retrieved on September 8‚ 2006‚ from EBSCOhost website http://web.ebscohost.com/ehost/pdf?vid=29&hid=11&sid
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