Corporate Finance Case 1 1. To calculate the present value of future cash flow in 2013‚ we first calculate the free cash flow between 2014-2020: Table 1: Free cash flow of 2014-2020 (in $million) After-tax profits Depreciation Gross investment in fixed assets Investment in net working capital Free cash flow 2014 2015 2016 2017 2018 2019 2020 5.25 2.40 5.70 3.10 3.00 3.12 3.40 3.17 4.35 3.26 6.00 3.44 7.60 3.68 (4.26) (10.50) (3.34) (3.65) (4.18) (5.37) (6.28) (1.39) (0.60)
Premium Generally Accepted Accounting Principles Depreciation Years in the future
use as a public park and recreation area and receive a charitable expense deduction of $6‚000‚000. The purpose of this paper is to analyze the project through calculating the payback period‚ profitability index‚ average accounting return‚ net present value‚ internal rate of return‚ and modified internal rate of return for the new strip mine. Based on these calculations‚ it will be determined whether Bethesda should take the contract and open the mine or pursue other opportunities. The Payback
Premium Net present value
understand that the value of a company is equal to the value of its assets‚ and that Value of Assets = Debt + Equity or Assets = D + E If I buy a company‚ I buy its stock (equity) and assume its debt (bonds and loans). Buying a company’s equity means that I actually gain ownership of the company – if I buy 50 percent of a company’s equity‚ I own 50 percent of the company. Assuming a company’s debt means that I promise to pay the company’s lenders the amount owed by the previous owner. The value of debt is
Premium Balance sheet Discounted cash flow Cash flow
investment. The net present value (NPV) and IRR of this project is -$945.68‚ and 11.49% respectively. As the project has negative NPV and the IRR is lower than the cost of capital‚ Rainbow should not purchase the machine. b) If Rainbow pays additional $500 per year‚ Rainbow can get a service contract that keeps the machine in new condition forever. As a result‚ the net cash flows per year would be $4‚500. The NPV of this project can be calculated as follows. NPV = Initial cost + Present Value of All Cash
Premium Net present value Investment Capital accumulation
NetFlix.com‚ Inc. Case Study Ron Golan Andy Shin Kevin You March 25‚ 2008 BMGT 440 – Professor David Kass Company Background & The Issue At Hand NetFlix.com‚ the world’s largest online DVD rental company‚ was founded by Reed Hastings and Marc Randolph in 1997‚ and is headquartered in Los Gatos‚ California. The company started its online DVD rental business by launching Netflix.com‚ offering pay-perDVD rental services by delivering DVDs via mail. As the company prospered during late
Premium Net present value Cash flow Renting
benefits from these cost were discontinued. (Williams‚ Haka‚ Bettner‚ & Carcello‚ 2010‚ p. 971). So basically if they took the lounge out of the equation nothing would change. CASE 26.1 a) use exhibits 26-3 and 26-4 to help compute the net present value of the proposal to sell the existing equipment and buy the laser printer‚ discounted at an annual rate of 15 percent. In your computation‚ make the following assumptions regarding the timing of cash flows: 1.The purchase price of the laser
Premium Net present value Discounted cash flow Cash flow
method to determine the net present value for an all equity firm | | | | | A) | Discounts the cash flows after tax by the levered equity rate | | | | | | B) | Discounts the cash flows after tax by the WACC | | | | | | C) | Discounts the earnings after tax by the unlevered equity rate | | | | | | D) | Discounts the cash flows after tax by the unlevered equity rate | | | | | | | | 3 | INCORRECT | | The APV method to value a project should be
Premium Net present value Internal rate of return
Petroleum Fiscal Regimes 4 Net Cash Flow 4 Concessionary system vs. Production Sharing contracts 5 Going Internation – Bidding Process 5 Economic Modelling 6 Production Costs 7 Wildcat 7 What is the wild cat success ratio? And what are the considered factors? 7 Depreciation 8 Abandonment 8 Goodwill‚ Leases‚ Ringfencing 9 Volatility of Crude Oil 9 Volatility of Gas 10 Forecasting 10 Opportunity cost 12 Present Value 12 Profitability Index 13 Attributes of Net Present Value 13 Perpetuity 14 Real or Nominal
Premium Net present value Cash flow Rate of return
of grade )(harvest per acre)(value of board game)](acres harvested) (1”C defect rate) Tractor cost = (Cost MBF)(MBF per acre)(acres) Road cost = (Cost MBF)(MBF per acre)(acres) Sale preparation and administration = (Cost MBF) (MBF acre) (acres) It is assumed that there is no depreciation as a result of the harvest. This is an indicator that operating cash flow is equal to net income. The NPV of the thinning‚ the NPV of all future harvests‚ minus the present value of the conservation fund costs
Premium Net present value Free cash flow Cash flow
Questions For Critical Thinking 7 BUSI 620 Salvatore’s Chapter 14: a. Discussion Questions: 12 and 15. b. Problems: spreadsheet problems 1 and 2. Note: 1. Spreadsheet problem 1: Use table 14-4 as reference. 2. Spreadsheet problem 2: Use tables 14-5 and 14-6 as reference. Discussion Question 12: What is the rationale behind the minimax regret rule? What are some less formal and precise methods of dealing with uncertainty? When are these useful? The rationale behind the minimax regret
Premium Net present value Risk aversion Risk