capital projects and| |identify the projects‚ which has the highest value adding to the company at the cost of capital. It uses net present value of | |future cash flows discounted at the appropriate cost of capital and compares it with initial investment and to see whether it | |is a positive net present value. If the present value is less than the initial investment then the project is rejected. That | |is the net present value is dependent on future cash flows.
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are expected to result in additional cash flows to Rainbow of $5‚000 per year. Themachine costs $35‚000 and is expected to last for 15 years. Rainbow has determined that the cost ofcapital for such an investment is 12%.[A] Compute the payback‚ net present value (NPV)‚ and internal rate of return (IRR) for this machine.Should Rainbow purchase it? Assume that all cash flows (except the initial purchase) occur at the endof the year‚ and do not consider taxes. Rainbow Products is considering the purchase
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The Net Present Value‚ Mergers and Acquisitions Michael D. Black Trident University Module 5 CASE Finance 501: Strategic Corporate Finance Professor: Walter Witham June 15‚ 2012 Net Present Value‚ Mergers and Acquisitions Abstract Financial managers must understand the value of dollars invested today in order to make decisions as to what capital ventures are worth pursuing for business growth. The money a business is willing to invest in new equipment or expansion
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the information is so readily available. II. internal rate of return because the results are easy to communicate and understand. III. discounted payback because of its simplicity. IV. net present value because it is considered by many to be the best method of analysis. | | | Student Response | Value | A. | I and III only | | B. | II and III only | | C. | I‚ II‚ and IV only | 100% | D. | II‚ III‚ and IV only | | E. | I‚ II‚ III‚ and IV | | | | | 2. | |
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1: Maplewood Creations is considering the purchase of a new truck to replace an old truck that has a book value of $2‚500 and a market value of $800. The annual depreciation expense on the old truck was $500. The new truck‚ which will cost $29‚000‚ will reduce operating costs $9‚000 per year over it ’s 6 year economic life. The new truck has a 5-year MACRS life and an estimated salvage value at the end of 6 years of $2‚000. If Maplewood has a 40 percent marginal tax rate and a cost of capital
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Rate of Return (IRR) and Net Present Value (NPV) will be provided and debriefed. It is extremely relevant to mention that capital budgeting allows the companies to analyze one or more projects to decide eventually which project or piece of equipment would be most profitable or suitable (economically)‚ according to the needs and the capacities the company has. Before entering into the analysis a little further and into the company chosen let us define what Net Present Value really is. According
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Caladonia Products Integrative Problem Tonia Tolliver‚ Suany Gonzalez‚ Teresa Powell‚ Victor Estrada‚ and Tracy Harriss FIN/370 November 8th‚ 2010 Joe Brennan Caladonia Products Integrative Problem Every new employee is faced with the challenge of proving him or herself before being trusted to complete a task on his or her own without supervision. The new financial analyst at Caladonia has been employed for two months and has proven to be a wise hiring decision based on the Chief
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in the second year‚ and $500‚000 in the third year. HVC ’s financial analysis team reviewed both projects and recommended that the company ’s objective should be to maximize the net present value of the total investment in Security Systems and Market Analysis. The net present value takes into account the estimated value of the stock at the end of the three-year period as well as the capital outflows that are necessary during each of the three years.
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000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10‚000. Payback period =Cost of investment/ Annual net cash flow =$260‚000/ $125‚000 =2.08 years Annual depreciation = $260‚000 -$10‚000 / 5 = $50‚000 Annual after tax income $75‚000 + Depreciation 50‚000 Annual net cash flow $125‚000 2. A machine costs $190‚000‚ has a $10‚000 salvage value‚ is expected to last nine years‚ and will generate an after-tax income of $30‚000
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versus IRR 9 Conclusion 10 References 11 ABSTRACT This paper covers the implementation of three investment appraisal methods. Initially‚ importance of investment appraisal has been analyzed. Secondly‚ calculations have been done for Net present value‚ Payback period‚ Internal Rate of Return for two projects. Subsequently‚ selection of project has been done with assistance of results from calculations. After that‚ it has been discussed that how does change in cost of capital affect NPV and
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