building site and building a new building on the property. The projected cost for the new building is $14 million‚ according to the vice president of marketing. The problem with the vice president’s proposal is that he does not take into account time value of money. The Executive Vice President has an argument for the vice president of marketing‚ stating that Guardian Insurance is willing to purchase the building site‚ construct the building‚ and install all fixtures to Wyndham Store’s specifications
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FIN 600 – Lecture 3 Discounted Cash Flow Valuation Chapter Outline Time Value of Money Valuation: The One-Period Case The Multiperiod Case Compounding Periods Simplifications What Is a Firm Worth? Time Value of Money A dollar received today is worth more than a dollar received in the future. Interest - is the return you receive for investing your money. The interest rate is the basis for a test that any proposed investment must pass. Example: Putting
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6 1 =(250‚0 00*1/21 )=11‚90 5 138‚095. 00 0 8.6% 2.a. Explain the mechanism of calculating the present value of cash flows.What is annuity due? How can you calculate the present and future values of an annuity due? Illustrate Ans. Money has time value: e.g. Rs 1‚000 received today is not the same after year Present value of cash flow: It shows the value of expected amount at current value. Discount rate = Inflation rate + required rate of return + risk free premium rate Details required
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4-5‚ Market Value = $20 X 1.2 = $24 P/E = $24 / $2 = 12.0 4-14‚ EBIT = $1‚000‚000 -Interest $300‚000 EBT $700‚000 Tax @ 34% $238‚000 Net Income $462‚000 Asset turnover ratio = total revenue / total assets 2 = $10000000 / total assets Total Assets = $5000000 Equity ratio = 1 – debt ratio Equity ratio = 40% Total Equity = equity ratio x total assets Total equity = 40% x $5000000 Total equity = $2000000 Return on Equity = $462000 / $2000000 Return on Equity = 23.10% 4-18
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ACC4053 | Financial Analysis CONTENTS 1. Introduction 2. Valuation of the Company 2.1 An evaluation of BAE Systems’ current position and its future prospects 2.2 Assessment of the value of BAE Systems based on the application of suitable cash flow based valuation techniques 2.3 Assessment of the value of BAE Systems based on the application of suitable accounting based valuation techniques 3. Comparison of the valuation with the ‘market’ valuation 4. Appendices 4.1 Appendix 1: PEST
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compounded annually. After five years‚ her savings account will be worth $5000. Assume she will not make any withdrawals. Given this‚ which one of the following statements is true? A) Samantha deposited more than $5600 this morning. B) The present value of Samantha’s account is $5600 C) Samantha could have deposited less money and still had $5600 in five years if she could have earned 5.5 percent interest. D) Samantha would have had to deposit more money to have $5600 in five years if she could
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purchase of the company. Peabody’s cost of debt was .038. This was calculated by assuming a 40% tax rate and .095 rate on debt (Exhibit 3). There was a .095 interest rate on notes payable due June 30‚ 1998; therefore‚ we assumed the rate of debt at the time of purchase would have been similar. Also‚ Peabody’s cost of equity was .1397. This was calculated by using a risk-free rate of .055‚ which was the rate of the 90-day T-bill in 1968. A beta of 1 was assumed and a .082 market risk premium was used.
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According to Gitman (2009)‚ present value (annuity): = (‚ ) PVA = PMT x (PVIFA11%‚ 30) PVA = $20‚000 x (8.694) PVA = $173‚880 b. How much will you need today as a single amount to provide the fund calculated in part “a” if you earn only 9% per year during the 20 years preceding retirement? $30‚950.64 would be needed today to provide $173‚880 assuming only 9% is earned per year during the 20 years preceding retirement. According to Gitman (2009)‚ present value (single amount): = (‚ ) PV
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Remaining maturity refers to: 6) Generally accepted accounting principles (GAAP) refers to 7) Original maturity refers to: 8) The firm’s assets in the balance sheet refer to: 9) Book value (or Net book value) refers to: 10) The return expected by equity investors is called the __________. 11) Assume that the par value of a bond is $1‚000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true? 12) Preferred stock payment obligations are
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reasons: o His age determines the time period wherein he can be productively employed. The time window available to Ben keeps on reducing with age. o Ben is away from formal mode of study for past six years. Being away from study for many years could cause significant difficulty in adapting to the daunting requirements of a typical MBA program. o The higher earning potential after the MBA program could be exploited more productively and for a longer span of time if Ben completes the MBA program at
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