Solutions to Problems Note to instructor: In most problems involving the IRR calculation‚ a financial calculator has been used. P9-1. LG 1: Payback period Basic a. $42‚000 ÷ $7‚000 = 6 years b. The company should accept the project‚ since 6 < 8. P9-2. LG 1: Payback comparisons Intermediate a. Machine 1: $14‚000 ÷ $3‚000 = 4 years‚ 8 months Machine 2: $21‚000 ÷ $4‚000 = 5 years‚ 3 months b. Only Machine 1 has a payback faster than 5 years and is acceptable. c. The firm will accept the first
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discount rate for 5 years that would make the PV of dollars at just over $2‚000. When we sum the NPV of the cash flows ‚ we get the NPV for the project. By undertaking the project we can project that the company within its 5 year initial cash flows will increase its value by over $1 million. We would estimate that the appropriate discount rate for the project would be 15.8% based on the calculations that were performed. When we compare the asset betas from competing firms‚ to the risk free rate
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Sebastian Krug‚ s082349 New Economy Transport 1 1 NET (A) - Question 1 As you can see on the rst spreadsheet the NPV of the overhaul with the new engine and control system (1:117:413; 38 Euro) is higher than the NPV without the new stu (480:211; 75 Euro). In this case Mr. Handy should choose the overhaul with the new stu . First of all the entire calculation is in real numbers. I’ve done it in nominal numbers too (with the same results) but it was too much to hand in. The assumptions I’ve
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the use of excess agglomerator capacity? Typically‚ when using Net Present Value (NPV) method to determine whether a project adds value to the organization‚ free cash flow is taken into consideration. Depreciation expense‚ a non-cash item‚ is to be added back to the operating profit after tax to give operating cash flow. Other expenses such as SG&A and fixed costs are to be included in operating cash flow calculation. Change in net working capital (current assets – current liabilities) and capital
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the stories may appear "plausibly real"‚ they are fictitious. You have 1 ½ hours to work. The marks for each question are given. Please provide the marker with the greatest opportunity to give you credit by showing all calculations clearly. Answers without clear and correct calculations/working steps/explanations will be penalized. Only normal writing instruments‚ a calculator and one 8.5"x11" or letter-size page list of hand-written formulas may be used to write this test. This formula sheet must be
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pg. 4 6. Controlling the Risk pg. 5 7. Diversification pg. 6 8. CAPM pg. 7 9. Beta: Advantages and Disadvantages pg. 8 10. Options pg. 10 11. Hedging pg. 11 12. Net Present Value (NPV) pg. 12 13. Technical Indicators: pg. 14 14. Efficiency Frontier pg. 15 14. Conclusion pg. 16 15. Bibliography pg. 18 16. Bonus Assignment- Investing Websites pg. 19 Modern Portfolio Theory
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Bernard’s value of original opportunity was $68.465K. Subtracted by the initial investment of $90K‚ the NPV was $21.535K. Thus‚ he planned to pass the opportunity. But his friends offered him alternatives which may generate positive outcomes to the project. With no options to either expand or buyout or both‚ if the viewer would be functional and website would be a winner‚ Bernard could make NPV= $366.44K by selling the business in six months. If the viewer were competitively functional in four months
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calculating multiple NPVs for multiple inflationary rates for labor cost and supply cost would further confuse the issue. The information presented the NPV‚ IRR‚ MIRR and payback times would be calculated and discussed. Additionally‚ a break even point would be calculated. The break even point calculation included in fixed cost would
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months and has proven to be a wise hiring decision based on the Chief Executive Officer (CEO) view however he is still hesitant to give the assistant any large responsibilities without supervision. The CEO has tasked the assistant with both the calculation of the cash flows associated with a new investment under consideration and the evaluation of several mutually exclusive projects (Keown‚ Martin‚ Perry‚ & Scott‚ 2005). The lack of experience on the assistants part has also lead to the CEO requesting
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projected NPV of the project is $142‚336‚356 (calculated on following pages.) The NPV includes the initial purchase price in 1991‚ revenue from the sale of lots each year‚ revenue from the sale of the recreation facility in 1999‚ construction costs each year‚ and taxes each year. 3. The project is a slam-dunk for the corporation because they are yielding an internal rate of return of 80%. The NPV of the future cash flows is significantly larger than the purchase costs of the assets. NPV Calculation
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