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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cash flows because these are available to the shareholders. The next thing we are interested in is the incremental cash flows because for this project these incremental cash flows are the marginal benefits we are looking for as a whole. The increased value to the firm from these small effective opportunities are what we want in accepting this project. “Any incremental after-tax cash flow affecting the company as a whole is a relevant cash flow‚ whether it is flowing in or flowing out.” (Keown 305)
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1. How does Ben’s age affect his decision to get an MBA? This document is the property of Management Development Institute‚ Gurgaon. Ben passed out from college six years ago with a finance undergraduate degree. He is 28 years of age and his goal I to become an investment banker. Ben’s age can affect his decision to get an MBA due to the following 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
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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 not be made. When net present value is zero‚ it
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want to determine which project would be worth doing by determining if they will add value to Star. Thus‚ the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value‚ or by solving for the internal rate of return‚ we should be able to see which projects
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investment choices using three criteria‚ the net present value and internal rate of return and payback period. In analysing the following investments I have not taken into account the effects of taxation Ranking of investments Investment 3 has the best rating using the three analysis tools‚ the initial investment is paid back after 5.05 years‚ followed by investment 2 Limitations of analysis using NPV‚ IRR and PP The results given from Net present value are affected by the discount rate and
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cash previously and depreciation is not a cash-flow (Titman‚ Keown‚ & Martin‚ 2011). Free cash flows also look at the Capital Expenditures (CAPEX) and Working Capital. The CAPEX includes initial project investments and also if there is any salvage value left on equipment. The Working Capital depends on how much the firm depended on credit and how much inventory they use as well. 3. What is the project’s initial outlay The intial outlay is 8‚000‚000 (7‚900‚000 for new
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Objective: Compute payback‚ NPV and IRR to decide whether Rainbow Products should purchase the machine or not. i) Bay back: cost of machine/expected saving per year = 35000/5000 = 7 years . ii) NPV = Difference between the present value of cash inflows and the present value of cash outflows. Thus‚ NPV = -35000 + 5000* [1-(1/(1.12)^15]/.12 -35000 + 34053.31 NPV = -945.68 iii) IRR: It is that rate of interest that makes the sum of all cash flows zero. 0 = -35000 + 5000*
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increases. Additionally‚ the US is experiencing rising costs for healthcare and education. Yet‚ the US economy is suffering through declining home values‚ a banking crisis‚ and an uncertain stock market. So‚ what would an increase in the interest rate mean for consumer financing for big-ticket items‚ the present and future values of annuities; net present values‚ weighted average costs of capital‚ and corporate earnings? Cost of Capital The cost of capital can be measured in a variety of ways. One may
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