Please assess the economic benefits of acquiring the Vulcan Mold-Maker machine. What is the initial outlay? What are the benefits over time? What is an appropriate discount rate? Does the net present value(NPV) warrant the investment in the machine? Initial Case Outlay Price of new machine (1‚010‚000) Current after-tax market value of old machine [130‚000+{(415‚807-130‚682) -130‚000}*0.43]= 196‚704 Net outlay for new machine -1‚010‚000+196‚704 = -813‚296 Appropriate discount rate Rs = Rf+B(Rm-Rf)
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Mold-Maker automated molding machine. Machine prepares sand molds into molten iron using iron castings‚ automates manual intensive process. Questions: 1. Assess the economic benefits of acquiring the Vulcan Mold-Maker machine. What is the initial outlay? What are the benefits over time? What is an appropriate discount rate? Does the net present value (NPV) warrant the investment in the machine? Assume that with ordinary maintenance‚ the semi-automated equipment could be operated for two more
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Solution to Case 103 IF THE COAT FITS WEAR IT – TEACHING NOTE Questions 1. Your supervisor‚ Vic Gonzales‚ has asked you to prepare a capital budgeting report indicating whether ISGC should replace the existing machine or not. Indicate how would you proceed (without making any calculations)? I would estimate the incremental cash flows over the economic life of the new machine‚ taking into consideration the after-tax salvage values of the old and new machine respectively. Changes in
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Environmental Impact by the Lapita Ursula V. P. Belyayeva Abstract The Lapita initial expansion was around 3500-3200 BP our goal is to investigate what initiated the expansion of the Lapita people from Near to Remote Oceania. By using push factor‚ we believe that the push condition was the over intensification of resources due to population pressure‚ which caused marine‚ agricultural and fauna depression and initiated the Lapita dispersal. From various archaeological studies‚ pollen can demonstrate
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taxes).Should the investment be undertaken if the required rate of return is 18 percent? The investment should not be undertaken because the internal rate of return of 15% is less than the required rate of 18%. Initial outlay $100‚000 Annuity amount 20‚000 Outlay ÷ annuity amount = PV of annuity factor 5.00 Internal rate of return 15% EXERCISE 9-11. Depreciation Tax Shield [LO 4] Strauss Corporation is making a $60‚000 investment in equipment with a five-year life
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corporate culture in the organization. Air Berlin company need for IPO is highlighted and the reasons for its decision to go public. Calculation of the NPV for the company is provided which necessitates in the determination of the share value of its initial public offer. Ryanair airline strategies Ryanair airline wants to resolutely establish itself as the leading airline industry in Europe. The company is facing stiff competition from its rival companies and aims at achieving global advantage over
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WHAT IS CAPITAL BUDGETING? 1. 2. Decision making process of selecting and evaluating longterm investments. Examples include the decision to replace equipment‚ to develop new product‚ or to build new shop at a new branch of operations. It is very crucial for companies to make the right decisions because these projects require a huge amount of cash outflow committed for many years. A right decision will increase the firm’s value as well as the shareholders’ wealth. A wrong decision will
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Capital Budgeting Case Richard Hughes QRB/501 Robert Halle Capital Budgeting Case Our extensive research on two investment options yielded the decision that Corporation B is the company that our company has decided to acquire with a $250‚000 initial outlay. We have conducted 5-year income cash flow projections. Our company determined the Net Present Value (NPV) as well at the investment’s internal rate of return (IRR). When making a decision to purchase or invest in a company‚ a decision maker needs
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annual free cash flow less the investments initial outlay” (Kewon 2013 pg 310). Whenever the NPV is greater or equal to zero we should accept the project‚ whenever the NPV is negative the project should be rejected. Internal rate of return answers the question of what “rate of return will the project earn” (Kewon 2013 pg 316). IRR is the “discount rate that equates the present value of the project’s free cash flows with the project’s initial cash outlay” (Kewon 2013 pg 316). The discount rate is
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CASE 2 Cash Flow Estimation and Risk Analysis Robert Montoya‚ Inc. Robert Montoya‚ Inc.‚ is a leading producer of wine in the United States. The firm was founded in 1960 by Robert Montoya‚ an Air Force veteran who had spent several years in France both before and after World War II. This experience convinced him that California could produce wines that were as good as or better than the best France had to offer. Originally‚ Robert Montoya sold his wine to wholesalers for distribution
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