characteristics‚ and for that we required 10% for our return‚ but we do not have the ability to stay on the project for more than 3 years‚ for that reason we estimate the free cash flows for both projects for the next three years. The main problem here that we have to evaluate and determine whether one or both of the franchises should be accepted. To solve this problem‚ we used 6 capital budgeting techniques: net present value (NPV)‚ internal rate of return (IRR)‚ modified IRR (MIRR)‚ profitability index
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calculating the hurdle rates at each of our firm’s three divisions: lodging‚ restaurant and contract services. I use Weighted Average Cost of Capital (WACC) as the hurdle rate. The investment projects in our company are selected by discounting the appropriate cash flows by the appropriate hurdle rate for each division. As the vice president of project financeof Marriott Corporation‚ I am conducting an analysis of our company (Marriott Corporation) for calculating the hurdle rates at each of our firm’s
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total dessert market (2% coming from the erosion of Jell-O sales). The company’s Financial Analyst has issued a memo comparing three alternative techniques for project evaluations‚ illustrating the problems and limitations inherent in using ROFE (return on funds employed) and payback as evaluation methods. The disparate ROFE results obtained with these methods are due to differences in the allocation of excess capacity from Jell-O equipment and overhead costs. Problem Statement: How should GF
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determining agent that evaluates the adequacy of returns. Careful analysis and reviews are necessary while taking these decisions. Parameters like cost‚ complexity‚ time and irreversibility are evaluated. The calculations involved when applying four common techniques to investing project cash flows are as follows: A. The payback is the time it takes for [Cumulative Cash Flows after t =0] to exceed [Cash Flow at t=0] B. The internal rate of return (IRR) is the rate at which [Sum of Discounted Cash Flows from
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the project‚ and the potential magnitude of the returns. This process may be done by analyzing the potential sources of return and calculating the present value of the internal rate of return (IRR) for each source. The financiers’ needs and objectives may vary widely. While most expect high returns for their investment‚ their motivations for investing could rely on other factors. Some may be more concerned with the magnitude or the form of return‚ others with the degree of control or the perceived
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financing should be reflected in the discount rate. 2) No‚ the 150‚000$ marketing test expense should not be included in the analysis because it is a sunk cost. 3) If the Cranberry Association did make an offer to lease the site for 25‚000$ a year for 20 years then the analysis should take into account this. Assuming no risk of default on Cranberry Association‚ Cranfield should discount future cash flows as an annuity using WACC as a discount rate to find the present value of the offering. Thus
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which is what an individual would do when trying to figure out if an investment is right for them or not. There are some steps that are included such as 1. Estimating cash flows 2. Access the risk 3. Determine the appropriate discount rate 4. Find the PV and rate of return b. What is the difference between independent and mutually exclusive projects? Between
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possibility that the best option will be to seek an entirely different user type where the Karaoke Pub crowd may alienate 25% of the hotel patrons with young children. This paper seeks to use capital budgeting analysis tools; net present value‚ internal rate of return‚ equivalent annual annuity and profitability index to definitively say which project has the best financial viability. The data used to generate the key decision metrics were provided by PBH management and are as follows. Planet Karaoke
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(3) Discounted cash flow (“DCF”) and (4) Internal Rate of Return (“IRR”). The initial assessment of this project was based on assumptions challenged by the experts at Victoria Chemicals. This analysis reflects a more conservative approach that includes potential risks of cannibalization‚ loss of sales following reconstruction of Merseyside and the purchase of rolling stock in 2010. Analysis Summary: The Merseyside Project met Victoria Chemicals’ internal criteria for consideration of projects
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8% interest and mature in ten years. The corporation is planning to sell the bonds at 5% discount. The underwriting fee is 3% of the selling price. The current tax rate is 40%. Source III Issue common shares at RM40. The corporation has just paid RM1.75 per share dividend and the dividend is expected to grow at a constant rate of 6% indefinitely. Floatation cost is 2.5% of the selling price. Calculate: i) The after-tax cost of debt(5 marks) ii) The after-tax cost of common shares (4
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