obtain the answers needed for the valuation‚ Team C will justify the current market of Target’s debt and equity by using various capital models of valuation. Team C will provide in-depth calculation of the discoveries and include models with rates of return. Current Market Price of Target’s Debt Valuation models are used in investment decisions whether it is a decision on which assets are under or overvalued. When in an efficient market‚ the market price is the best estimate of value
Premium Net present value Cash flow Discounted cash flow
Sampa Video‚ Inc. 1. What is the appropriate discount rate and the value of the project assuming the firm is going to fund it with all equity? “The discount rate of a project should be the expected return on a financial asset of comparable risk” To estimate Sampa Video’s cost of equity capital we used the CAPM model‚ in which rf refers to the risk free rate‚ to the market risk premium‚ and β to the company Beta (Table 1). Since the Beta of the company wasn’t known‚ we decided to use an
Premium Net present value Cash flow Internal rate of return
accept projects with the highest positive NPV‚ those that add the most value. In this example‚ accept S if mutually exclusive (NPVS > NPVL)‚ and accept both if independent. [pic] [pic] [pic] [pic] Quiz Internal rate of return‚ IRR‚ will increase as the required rate of return of a project is increased? False. If the project’s payback period is greater than or equal to zero‚ the project should always be accepted? False. When several sign reversals in the cash flow stream occur‚ the IRR
Premium Net present value Cash flow Investment
Merseyside Plant. The project has been proposed to improve the product output of Diamond Chemicals’ Merseyside factory. However‚ recently‚ different departments have mentioned problems such as capital expenditure‚ marketing cannibalization‚ discount rate etc. Diamond Chemicals needs to take all these suggestions into consideration. Based on that they have to decide if they should carry out this project or not. Assumptions: Preliminary engineering costs: We have decided not to include this figure
Premium Net present value Internal rate of return
7 4.2 Income Statement (Estimated) 7 4.3 Statement of Cash Flow (Estimated) 8 5 Future Prospects and Concerns 8 1. Summary - Project Revere Street a. Estimated project Net Present Value -- $24‚736 b. Estimated project Internal Rate of Return -- 19.10% c. Major concern -- Source of funds d. Suggested action toward project Revere Street -- GO 2. The Residential Property Overview 2.1 Location In the world of real estate‚ location sometimes determines the future
Premium Cash flow Internal rate of return Net present value
Capital 11.5 Cost of Retained Earnings 11.6 Cost of Newly Issued Stock 11.7 Target Capital Structure 11.8 Marginal Cost of Capital 11.9 Factors Affecting the Cost of Capital 11.10 Payback Period 11.11 Net Present Value (NPV) and the Internal Rate of Return (IRR) 11.12 The NPV Profile 11.13 Cash Flow and NPV Applications 11.14 Advantages and Disadvantages of the NPV and IRR Methods 11.15 Applying NPV Analysis to Project Decisions 11.16 Comparing Projects With Unequal Lives 11.17 Types of
Premium Net present value Corporate finance Finance
the internal rate of return related to the investment was not high enough to justify a purchase of the company. Peabody’s cost of debt was .038. This was calculated by assuming a 40% tax rate and .095 rate on debt (Exhibit 3). There was a .095 interest rate on notes payable due June 30‚ 1998; therefore‚ we assumed the rate of debt at the time of purchase would have been similar. Also‚ Peabody’s cost of equity was .1397. This was calculated by using a risk-free rate of .055‚ which was the rate of the
Premium Weighted average cost of capital Rate of return Net present value
net present value for an all equity firm | | | | | A) | Discounts the cash flows after tax by the levered equity rate | | | | | | B) | Discounts the cash flows after tax by the WACC | | | | | | C) | Discounts the earnings after tax by the unlevered equity rate | | | | | | D) | Discounts the cash flows after tax by the unlevered equity rate | | | | | | | | 3 | INCORRECT | | The APV method to value a project should be used: | | | |
Premium Net present value Internal rate of return
worldwide chemical industry. After taking all the costs and benefits into consideration‚ Greystock put together his own analysis in which he based it on four difference components; Earning per Share‚ Payback Period‚ Net Present Value‚ and Internal rate of return. Soon after many people looked at his analysis and had several questions and suggestions to give to Greystock. We will see soon enough that Greystock’s Analysis had many flaws that needed to be fixed and how it really should have been done
Premium Net present value Internal rate of return
Lesson Plan on Capital Budgeting Capital Budgeting - process of deciding whether or not to commit resources to projects whose costs and benefits are spread over several time periods. Characteristics of a Capital Investment Decision: 1. Substantial amount of funds are required in capital projects. 2. Because of the length of time span by a capital investment decision‚ the element of uncertainty becomes more critical. 3. The effect of managerial errors will be difficult to reverse
Premium Net present value Internal rate of return