guilty of rejecting worthwhile investments because of the improper treatment of inflation in the financial appraisal. Many firms are understating NPVs and IRRs because of the incorrect treatment of inflation and the use of excessively high discount rates. Concern has also been expressed by various commentators that many companies are failing to invest in advanced manufacturing technologies (AMT) as fully as they should. Financial appraisal techniques have been cited as a major reason for the under-investment
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launch the project. Approval does not even depend on the value of assets sponsors are willing to make available as collateral. Instead‚ it is basically a function of the project’s ability to repay the debt contracted and remunerate capital invested at a rate consistent with the degree of risk inherent in the venture concerned. We deem Petrozuata as a project for it will be a totally standalone entity and the ability of repayment and financing risks are mainly associated with the entity. According
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investment Appraisal? 6) Assumptions of discounted cash flows 7) How inflation may complicate analysis of Decisions Difference between Specific inflation rate and General inflation rate 9) Advantages and disadvantages of • Payback Period (PBP)‚ • Accounting Rate of Return (ARR)‚ • Net Present Value (NPV) and • Internal Rate of Return (IRR). 10) Comparison between NPV & IRR 11) Difference between Risk and Uncertainty 12) Strength and weakness of Sensitivity analysis‚ Expected Value (EV)
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Custom Snowboards Inc. Managing Capital & Financial Assets 05/10/2014 WGU JET2 Financial Analysis Task 5‚ Part II - PASSED To: Chief Executive Officer (CEO) of Custom Snowboards Inc. Subject: Report of historical data and recommendation on how to proceed with expansion plans to Europe. European Expansion Historical Analysis To make a decision about expansion to Europe‚ we must first analyze past performance as an indicator about future performance. A historical analysis was completed
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longer period. The estimated betas of Boeing against the S&P 500 and the NYSE composite index using 60 trading days data are 1.45 and 1.62 respectively. If the weighted average cost of capital (WACC) of this project could be lower than its internal rate of return (IRR) with the estimated beta of 1.62‚ the estimated beta of 1.45 would not cause the project to be rejected. Therefore‚ the analysis uses the estimated beta calculated against NYSE composites index‚ which is 1.62‚ to compute the WACC.
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Solutions to Chapter 12 The Cost of Capital 1. The yield to maturity for the bonds (since maturity is now 19 years) is the interest rate (r) that is the solution to the following equation: [$80 annuity factor(r‚ 19 years)] + [$1‚000/(1 + r)19] = $1‚050 Using a financial calculator‚ enter: n = 19‚ FV = 1000‚ PV = (-)1050‚ PMT = 90‚ and then compute i = 7.50% Therefore‚ the after-tax cost of debt is: 7.50% (1 – 0.35) = 4.88% 2. r = DIV/P0 = $4/$40 = 0.10 = 10% 3. = [0.3 7.50% (1
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remarkable high return on equity of 39% after-tax. Our analysis of the Processing Plant Project will help you make a well informed decision and additionally‚ it will provide an action-oriented recommendation. We will first identify key issues and risk involved followed by financial support of the project. Our analysis is supported with financial measures of NPV‚ IRR‚ CAPM theory and WACC to illustrate if accepting Processing Plant Project would provide acceptable required rate of return for Harris Seafoods
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Payback period hanya cocok digunakan untuk perusahaan kecil atau perusahaan yang ingin berinvestasi dalam skala kecil dengan prioritas perolehan likuiditas secepat mungkin. 2. Calculate the Discounted Payback Period (DPP) using 10% as the discount rate. Should Tim ask the Board to use DPP as the deciding factor? Explain. Answer : Year Synthetic Resin Epoxy Resin Undiscounted Cash Flows PVIF Discounted Cash Flows Cumulative Discounted Cash Flows Undiscounted Cash Flows PVIF Discounted Cash Flows
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Table of Contents Case 1 Introduction Jill’s business is expanding while the up going GST prevent her from gaining more profits. The idea of replacing the labor with the help of new equipment will bring about an unprofitable break-even point. However Jill still insist on borrowing from bank to invest in the equipment regardless of the CVP analysis result‚ which raised some ethical issues. Analysis Question 1 Defining the stakeholders There are 5 major stakeholders arising
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of Business University of California at Berkeley Abstract This paper argues that matching expenses to revenues increases earnings’ usefulness to investors by providing an accounting rate of return (ARR) closer to current economic profitability. To test this‚ I estimate a proxy for a firm’s internal rate of return (IRR) in order to approximate the distortion between ARR and IRR. Results show that the magnitude of the difference is reduced for firms with a higher degree of matched expenses. The median
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