NPV is short for Net Present Value and it makes difference between the present value and cost of a project. In addition‚ NPV takes into account all cash flows through out the whole life of the projects‚ as well as the time value of money. And it compares like with like as all inflows and outflows are discounted to today¡¯s date. Also‚ the cost of capital is very unlikely to be changed over a period of time. To judge if the NPV is good‚ we should see the value of it‚ and the rule is the high the better
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The time value of money assumes that the present value of a dollar in the future is less than a dollar today (Edmonds‚ Chapter 24‚ 2007). To make sure that cash outflows and cash inflows are comparable the present value of the future cash flows are restated to “today’s dollars” (“Capital Budgeting Techniques”‚ n.d.). This in turn allows a company to determine if the investment will be beneficial considering the cost. The present value technique uses a discount rate and the present value of future
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CHAPTER 6 PRJECT ANALYSIS UNDER CERTAINTY ANSWERS TO REVIEW QUESTIONS QUESTIONS 6.1 Explain and define the terms: net present value‚ internal rate of return‚ modified internal rate of return‚ accounting rate of return‚ and payback period. 6.2 Explain the role of ‘certainty’ in project evaluation decisions. 6.3 Assume that Anvil Inc. has estimated the following annual data for the introduction of a new product‚ Ranch Hand: EOY 0 EOY 1 EOY 2 EOY
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to install a new machine. Management is considering buying and leasing in the form of financial statements‚ so costs affect net profit of the company. In deciding whether to lease or purchase of the machine it is necessary to learn what each option‚ and the cash flows of the parameters to select will give the highest return of investment-related cash flow. Net present value (NPV) is used to decide whether to buy or lease of machines‚ and represents the cash flow associated with each option’s spreadsheet
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Q1. Why is Amazon’s cash cycle so much shorter than that of competitor Barnes & Noble? How does this comparison affect financial management decisions of other retailers? The market value of Amazon is much higher than Barnes & Noble. They are also in better marketing position then Barnes and Noble. Barnes & Noble has been on the rocks for a long time and failed to make headway in international markets with their Nook ereaders. The best answer I can give is because Amazon is a much larger company
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Lecture 2 Market-Based Assets and Company Value ... linking brand-building activity with financial outcomes 1 The traditional role of marketing Role of marketing is to stimulate demand Achieve revenue and profit objectives The object of marketing actions is customers / distribution channels therefore‚ marketing activity is an expense 2 Emerging view Customers and distribution channels not simply objects to be sold things They are assets to be cultivated Marketing is not just an expense‚ it is
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identifying which projects would be inadvisable to pursue based on company policies by first calculation the net present value‚ internal rate of return‚ accounting rate of return‚ and the payback period for each project. Capital Budgeting Figures (in € thousands) | | | Project A | Project B | Project C | Project D | Project E | Project F | Project G | Net Present Value | $5‚371.90 | $1‚044.90 | $5‚464.00 | $114.60 | $6‚480.00 | ($1‚727.00) | ($304.95) | Internal Rate of
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Yr 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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Groupe Ariel SA Case Introduction Groupe Ariel SA of France is considering a project in Mexico. They need to analyze the net present value of the project‚ keeping in mind the exchange rates between Mexican Pesos and Euros in order to maximize their return. They also need to keep in mind the inflation rates over time and the risks involved with this type of investment. Analysis Number 1. Groupe Ariel is recycling old equipment in Mexico. They will need to use pesos to calculate their cash
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B are unacceptable because they both have negative Net Present Values. 7. Which project do you recommend and why? Explain why each of the projects not chosen was rejected. I would recommend Project C because it has the highest net present value. This means that the project will add value to the company by increasing shareholder wealth and because the reinvestment rate is the WACC; it also has the highest terminal value which is the future value of the projects cash inflows. This makes project C
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