Q1: Is the NPV that is generated by the simulation macro the firm value or from the perspective of Mr. Bernard? A: The Simulation tab calculates NPV from the perspective of Mr. Bernard. If you look at the inputs at the top left of the worksheet‚ Bernard’s stake and investment are needed. These are used in the NPV formulas in rows 36 to 39. Please try to understand the formulas. While this course cannot cover coding for simulations‚ please do go through the formulas to get
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CAPITAL BUDGETING MEANING OF CAPITAL BUDGETING Capital budgeting is the making of long term planning decision for investment fixed assets and their financing. Capital budgeting decision is concerned with current investment that will pay for itself and yield an acceptable rate of return over its life span. Hampton (1992) defines capital budgeting as the decision making process by which firms evaluate the purchase of major fixed assets‚ including buildings‚ equipment. It also covers decisions to
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P1 1.1 Identify (i.e. - list down) at least 4 sources of finance available to Blue Mountain Solutions. The sources of finance available for Miss Begun and her new establish business “Blue Mountain Solutions” are: 1. Loan from bank 2. Government Grants 3. Share capital issued 4. Bank Overdraft 5. Finance leasing 6. Sell of assets P2 1.2 Assess the implications of different sources finance (e.g. - equity financing and debt financing) for Blue Mountain
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three years‚ which projects would you accept? “A‚ B‚ C” All the projects meet the given cutoff period‚ thus‚ every project (A‚ B‚ C) is acceptable. (In terms of NPV‚ since B has the highest NPV‚ B is the best option.) d. If the opportunity cost of capital is 10%‚ which projects have positive NPVs? “B & C” have the positive NPV at the capital cost of 10%. e.“If a firm uses a single cutoff period for all projects‚ it is likely to accept too many short- lived projects.” True or false?
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The firm selling the new machine has agreed to find a buyer who would pay $30‚000 for the old machine. The discount rate is 9% and the tax rate is 48%. Should Kramer replace the old machine with the new one? Support your answer with appropriate calculations. 2. Kamal Copies (KC) may buy a high volume machine that sells widgets. The machine costs $100‚000 and will be depreciated straight line over five years to a salvage value of $25‚000. KC anticipates that the machine can actually be sold in five
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bankruptcy‚ should any number of variables prove unfavorable to HPL. Moreover‚ the project relies heavily on a contract with a single large customer. Given the high level of risk and relatively low return associated with the project‚ despite a positive NPV based on pro forma cash flows‚ I would strongly recommend the firm consider alternative investment opportunities. Problem Being Examined Tucker Hansson owns Hansson Private Label‚ a 15-year-old private company that manufactures personal care products
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appropriate rate for discounting to present time b) using a simple Black-Scholes options pricing model to calculate the price of the rights call. The data which we will use to compute our calculations was provided by David Davis and the Paul Kagan Associates which are presented in exhibits 6 to 9. Calculating the NPV of all the profitable sequels of a studio. The data used assumes that the sequel’s estimated negative cost and US theater rentals are 120% and 70% respectively‚ of the corresponding items
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Notes: FIN 303 Spring 09‚ Part 7 – Capital Budgeting Professor James P. Dow‚ Jr. Part 7. Capital Budgeting What is Capital Budgeting? Nancy Garcia and Digital Solutions Digital Solutions‚ a software development house‚ is considering a number of new projects‚ including a joint venture with another company. Digital Solutions would provide the software expertise to do the development‚ while the other company‚ American Financial Consultants (AFC) would be responsible for the marketing.
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capital budgeting project. a. True b. False ANSWER: False 3. Assuming that their NPVs based on the firm’s cost of capital are equal‚ the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. a. True b. False ANSWER: False 4. A basic rule in capital budgeting is that if a project’s NPV exceeds its IRR‚ then the project should be accepted. a. True b. False ANSWER:
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Assignment Chapter 11 Assignment Chapter 11 True/False Indicate whether the statement is true or false. ____ 1. Assuming that their NPVs based on the firm’s cost of capital are equal‚ the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. ____ 2. The internal rate of return is that discount rate that equates the present value of the cash outflows (or costs) with
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