recommendation would be the only scenario where Ocean Carriers sees a positive net present value of the investment—the investment would yield a NPV after 25 years of $977‚267. Scrapping at any year before or after 25 years would be non-optimal. Scrapping before year 20 would result in a negative NPV and scrapping after year 25 would not yield as high as the year 25 NPV. Thus‚ Ocean Carriers should invest in the new ship only if it plans on commissioning the ship for a minimum of 20 years. Assumptions
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Unit 5 Assignment Charles Murphy GB-540 9-10 The earnings‚ dividends‚ and stock price of Shelby Inc. are expected to grow at 7% per year in the future. Shelby’s common stock sells for $23 per share‚ its last dividend was $2.00‚ and the company will pay a dividend of $2.14 at the end of the current year. a. Using discounted cash flow approach‚ what is the cost of equity? Using the formula of ks = [pic] + g‚ you would take the cost dividend($2.14) divided by the stock share price of
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currently offered products. Or not to introduce the new product and lease out it’s space‚ or do nothing to save the space until it’s needed for its current product line. 1) Incremental cash flows are the cash flows that should be used in calculating the NPV of a project. The cash flows are changes in cash flows that occur as a direct consequence of accepting a project‚ not the cash flows that the company is already receiving. No we do not include interest expense in the capital budging process‚ because
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Answers to Problem Sets 1. a. A = 3 years‚ B = 2 years‚ C = 3 years b. B c. A‚ B‚ and C d. B and C (NPVB = $3‚378; NPVC = $2‚405) e. True f. It will accept no negative-NPV projects but will turn down some with positive NPVs. A project can have positive NPV if all future cash flows are considered but still do not meet the stated cutoff period. 2. Given the cash flows C0‚ C1‚ . . . ‚ CT‚ IRR is defined by: It is calculated by trial and error
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6/14/2003 Chapter 11 Mini Case Situation Shrieves Casting Company is considering adding a new line to its product mix‚ and the capital budgeting analysis is being conducted by Sidney Johnson‚ a recently graduated MBA. The production line would be set up in unused space in Shrieves ’ main plant. The machinery’s invoice price would be approximately $200‚000; another $10‚000 in shipping charges would be required; and it would cost an additional $30‚000 to install the equipment. The machinery has
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Parents Pay Close Attention: Vaccine That Destroys the Reproductive Systems and Ovaries of Your Daughters The corporate Merck & Co. produces the HPV – human papilloma virus vaccine called Gardasil. The shocking news revealed by a recent research is that the company did not examine the effects of vaccine on the female reproductive system. Due to this terrible and huge mistake‚ a girl in Australia was left with completely destroyed ovaries. In this article‚ we will present the story about the
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to do with retention but with the NPV of the extra funds (either retained or raised): if NPV is zero‚ dividend irrelevance applies. Yet‚ the dichotomy retention/no-retention is useful‚ because if agency problems are present‚ managers tend to retain funds and invest them in negative-NPV projects‚ and therefore the zero-NPV assumption must be removed‚ so that dividend irrelevance does not apply any more. Keywords. Dividend policy‚ irrelevance‚ retention‚ zero-NPV‚ epistemology‚ modelling‚ agency theory
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Washington State University Finance 325 Practice Problems 1. What is the net present value of a project with the following cash flows and a required return of 12 percent? Year 0 1 2 3 Cash Flow -$28‚900 $12‚450 $19‚630 $ 2‚750 2. What is the net present value of a project that has an initial cash outflow of $12‚670 and the following cash inflows? The required return is 11.5 percent. Year 1 2 3 4 Cash Inflows $4‚375 $ 0 $8‚750 $4‚100 3. A project will produce cash inflows of $1‚750
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Case 20: PEPSICO CHANGCHUN JOINT VENTURE Capital Expenditure Analysis Study Questions Q1. Use the information in the case to construct two sets of NPV and IRR analysis from joint venture view and Pepsico. Based on the results‚ what would be your decision on the proposed Changchun joint venture? Q2. Comment on the financial projections that PepsiCo used in its capital budgeting exercise‚ especially the NOPBT Cap‚ foreign exchange rate projection and the discount rate. Q3. What differences might
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determining which Corporation would be the better buy we will look at the Net Present Value (year 1 through 5) of both Corporations‚ determine the Internal Rate of Return‚ and conduct an analysis of the information gathered. Net Present Value (NPV) Net Present Value (NPV) is the sum of income and outgoing cash flows based on the present value of the same entity. If the net present value of the investment is positive an investment should be made otherwise‚ if net present value is negative an investment should
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