Question 1 (1 mark) The methods that a firm can use to evaluate a potential investment: 1) ‘Discounting’ Methods: Net Present Value (NPV): the present value of the future after-tax cash flow minus the investment outlay made initially. The decision rule for the NPV as follows: invest if NPV> 0‚ do not invest if NPV< 0 Internal Rate of Return (IRR): calculates the interest rate that equates the present value of the future after-tax cash flows equal that investment outlay;
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FINC421 – Case Study in Corporate Finance Case Report Diamond Chemicals plc. : The Merseyside Project Introduction The goal of this report is to analyze and evaluate the capital budgeting decision of Ms. Morris and suggestion to the senior management of Diamond Chemicals PLC if sufficient capital should be allocated for the proposed £12 million expenditure to modernize and rationalize the polypropylene production line at the Merseyside Plant. The project
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alternatives exist for organizations to make their capital budgeting (CB) decisions or the alternative projects can be ranked in line with the benefits arrived in terms of profitability and the revenue generated. (Gitman‚ 2008). Net present value (NPV)‚ internal rate of return (IRR)‚ accounting rate of return (ARR) and PBK are generally described as the most commonly used CBTs. The two former techniques are based on the cash-flow concept and are usually categorized as sophisticated techniques. Bierman
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CHAPTER 12 RISK TOPICS AND REAL OPTIONS IN CAPITAL BUDGETING FOCUS Traditional capital budgeting techniques compute point estimates of NPV and IRR with no measure of variability. Hence they don’t give managers the information necessary to include a tradeoff between risk and expected return in their decisions. This chapter is concerned with modern approaches to incorporating risk into capital budgeting. The techniques considered include probabilistic cash flows‚ risk adjusted discount rates
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3. Realizing that the CIC will demand some kind of sensitivity analyses‚ how should Dave and Rick prepare their report? Which variables or inputs are obvious ones that need to be analyzed using multiple values? Explain by performing suitable calculations. The variables that are vulnerable to economic and market factors such as competition‚ inflation‚ and recession are selling price per unit and variable cost per unit. To some extent fixed costs can be sensitive as well. Price per unit has
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Fin 650 : Paper (group) 100 kW Solar Mini Grid at Sandwip Island The Sandwip Island‚ has a population of 400‚000‚ is detached from Chittagong mainland by a channel of about 75 kilometers. Located along the south eastern coast of Bangladesh‚ the island is 50 kilometres long and 5.15 kilometres wide. There are 15 unions in Sandwip.Because of its position and inaccessibility there is no possibility of grid electrification service in this area in the distant future. Sandwip is an upazilla with very
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0‚373 472 505 424 408 398 247 16 608 944 of 28‚00% present 17 904 104 0 Calculation = = ke -g x - = = R43 484 375 2 MAC3702/202/2 QUESTION 1 (continued) The value of 100% of Kgorong (Pty) Ltd is R17 904 104 Therefore the value of 10% = R17 904 104 x 0‚10 = R1 790 410 Alternative method by making use of the calculator INPUT in calculator R0 R605 000 R695 750 R834 900 R44 528 000 I/YR 28 COMP NPV (HP10bII) R17 883 392 The value of 100% of Kgorong (Pty) Ltd is R17 883 392 Therefore
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allocation of charges for the use of the excess agglomerator capacity are not incremental because they are sunken costs that have already been accounted for. Whether Super is accepted or rejected‚ they will not affect the cash flows beyond current calculations. Overhead expenses is incremental because the expansion needed indicates increased business activity that will inquire an additional overhead costs of $540‚000 to endure the demand for the goods. This increase in operating CL will create a change
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[Title Here‚ up to 12 Words‚ on One to Two Lines]Wheel Industries Consultant Report Argosy University Professor Charlie Merritt Financial Management | FIN401 A02 Company Information Wheel Industries is considering a three-year expansion project‚ Project A. The project requires an initial investment of $1.5 million. The project will use the straight-line depreciation method. The project has no salvage value. It
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Case Study #1: Green Valley Medical 1-Green Valley Medical Center is a nonprofit teaching hospital affiliated with a large state university and had grown since its foundation in the 1930s with continuous support from state revenues. Since it is a nonprofit organization its main goal is not to create profit for the investors‚ but to reach their institutional goals‚ which in this case is to offer good service for the region it is located in and to train the students that attend to the state university
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