obtain a new truck presents opportunities for further analysis to determine if the truck should be purchased or leased and if one option is selected over the other‚ how will this decision affect future costs to Riverbend? 1) Should Riverbend buy or lease the truck? In order to do a fair comparison of number‚ we need to calculate the present value of an annuity for leasing the vehicle. With an assumed discount rate of 10%‚ over the course of 5 years‚ we calculated a present value of $27‚293. 76
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yearly. So the yearly expenses are $500 * 200 = $100‚000. The net income was found by subtracting expenses from income. $660‚000 - $100‚000 = $560‚000‚ which is the amount made from ticket sales. Next we had to get the Net Present Value (NPV)‚ which is the “sum of the present values of all expected cash flows (Horngren‚ Sundem‚ Stratton‚ Burgstahler‚ and Schatzberg‚ 2008)‚” of the before tax net cash inflow. We took the net income and multiplied it by the NPV factor‚ which is 6.6231. $560
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1 Course Road Map I. Present Value and Stock Valuation II. Project Appraisal and Capital Budgeting III. Risk and Return and Portfolio Selection IV. CAPM and WACC V. Capital Structure and Dividend Policy VI. Options and Real Options Principles of Finance Present Value - Page 2 Present Value - Contents • Valuing Cash Flows – The Time Value of Money – Future Value – Present Value – Value Additivity • Project Evaluation – Net Present Value – The Net Present Value Rule • Shortcuts to Special
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[pic] ADM 3350 M Winter 2010 CORPORATE FINANCE ANSWER KEY MIDTERM EXAMINATION – February 10th‚ 2010 Professor: Kaouthar LAJILI‚ PhD.‚ CGA Duration: 1 hour and 30 minutes | | | | |INSTRUCTIONS | | |
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expenses of the firm for some time period E) comprise the sum total of all production expenses of the firm for some time period‚ expressed relative to the total output produced for that same time period 7- The sales level that results in a project’s net income exactly equal to zero is called: A)
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Running head: A COMPARISON OF EVA AND NPV A Comparison of EVA and NPV (discuss the differences and similarity of EVA and NPV; why would companies choose to adopt EVA‚ implementation issues; chronicle the implementation experience of EVA on a real life company). 1 A COMPARISON OF EVA AND NPV 2 A Comparison of EVA and NPV (discuss the differences and similarity of EVA and NPV; why would companies choose to adopt EVA‚ implementation issues; chronicle the implementation
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relationship between the net present value and the internal rate of return for the two corporations that are analyzed. Capital Budgeting Case A company is planning in acquiring a new corporation and there are two options with the same cost of $250‚000 but both with different 5-year projections of cash flows. The evaluation done to the two corporations (A and B) is based on the Net Present Value (NPV) and the Internal Rate of Return (IRR). The net present value represents the value the project or
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In the case of Worldwide Paper Company we performed calculations to decide whether they should accept a new project or not. We calculated their net income and their cash flows for this project (See Table 1.6 and 1.5). We computed WPC’s weighted average cost of capital as 9.87%. We then used the cash flows to calculate the company’s NPV. We first calculated the NPV by using the 15% discount rate; by using that number we calculated a negative NPV of $2‚162‚760. We determined that the discount rate
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techniques such as • Accounting rate of return • Net present value • Profitability index • Internal rate of return • Modified internal rate of return • Equivalent annuity Here in our case‚ we have used Net Present Value or NPV‚ which is estimating the size and timing of all the incremental cash flows from the project. These future cash flows are then discounted to determine their present value. These present values are then summed‚ to get the NPV. The NPV decision rule
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in one year Interest Net Present Value $2‚000‚000 $3‚000‚000 6% (NPV) = $2M + $3M/ (1+0.06) = $4‚830‚188.68 Virginia’s current wealth is made up of her $2 million in had and the present value of her future $3 million. 1b. How much can Virginia spend today? Without a loan If Virginia does not want to borrow from the bank‚ she can spend a maximum of $2 million. With a loan If Virginia makes use of a bank loan‚ taking into account the $2million in hand and the present value of her future 3 million
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