CHAPTER 6 Making Investment Decisions with the Net Present Value Rule Answers to Problem Sets 1. a‚ b‚ d‚ g‚ h; c is a sunk cost. e is an overhead cost. f is not an incremental cash flow because depreciation is not a cash flow. i is a sunk cost. Est. Time: 01 - 05 2. Real cash flow = 100‚000/1.04 = $96‚154. The real discount rate is calculated as 1 + nominal rate / 1+ inflation rate − 1. Therefore‚ 1.08/1.04 − 1 = .03846. PV = [pic] Est
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– Using the Projected Financial Performances 5 Comparison 6 Question 3 7 Advantages 7 1. Time Value 7 2. Capture Value of Options 7 Disadvantages 7 1. Assumptions Made 7 2. Tax Effect 7 3. Historical Data 8 4. Selection Bias 8 Further Assistance/Data Required 8 Question 4 9 Problems/Disagreement 9 Contractual Terms and Provisions 9 Appendix A – Per Film Value Using Financial Projections 11 Introduction In 1992‚ Paul Kagan Associates‚ Inc. came out with a new
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for the project is the: A) make decisions by choosing among alternatives stage. B) make predictions stage. C) obtain information stage. D) implement the decision‚ evaluate performance‚ and learn stage. Answer: D Diff: 1 Terms: net present value (NPV) method Objective: 2 AACSB: Reflective thinking 4) Discounted cash flow methods for capital budgeting focus on: A) cash inflows B) operating income C) cash outflows D) Both A and C are correct. Answer: D Diff: 2 Terms:
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Project B : 100‚000/200‚000 = .5 4 years + .5 years= 4.5 years 12b. What is each project’s net present value? For project A‚ the projects net present value is $100‚000 the initial investment overhead of the project is a negative expenditure because it is an expense to the company. Over the next five years the group expects to add the present annual value of $32‚000‚ the return rate will be 11% utilizing the annuity table. The factor will be 3.696 at 11% for five years
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helps with financial planning and it reflects the value of the assets based on GAAP (which refers to the Generally Accepted Accounting Principles). GAAP is just a set of guidelines that must be followed when it comes to any type of financial practice. Market price is also a crucial component of the balance sheet and can impact the financial statements. Market values reflect the amount someone is willing to pay today for an asset. Market values also reflect its historical costs. A financial manager
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exhibit‚ is terminal value a material component of firm values? Drawing on case Exhibit 4 and your own general knowledge‚ where would the various estimators be appropriate? Where would they be inappropriate? (Simon’s second task) Regarding the cash flow forecasts in case Exhibit 5‚ at what point in the future would you set the forecast horizon for the three investments? Why? More generally‚ what should determine when you stop forecasting annual cash flows and estimate a terminal value? Estimate other
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“Production of mango (Mangifera Indica) in Shibgonj Upazila of Chapai Nawabgonj District: An economic analysis” 1Zihad Ahmed 2Md. Mizanoor Rahman Abstract: Mango (Mangifera Indica) popularly known as ‘National Tree’‚ is grown all over the country. Chapai Nawabgonj is the most Mango producing areas in the country. Besides‚ mangoes are grown significantly in the Upazila of Shibgonj‚ Gomostapur‚ Chapai Nawabgonj Sadar and Bholahat. The study was based on field survey covering 2 mouzas (Baghdurgapur
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Accounting 310 Instructor: Matt Keogh Introduction “Net Present Value (NPV) is the present value of the net cash inflows generated by a project including salvage value‚ if any‚ less the initial investment on the project‚” (Irfanullah‚ Jan.‚ 2013). It is preferred as one of the most reliable measures employed in capital budgeting since it accounts for the time value of money as it uses the discounted cash inflows. The net cash inflow is equivalent to the total cash inflow during a given
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CAPM is to compensate investors by considering the risk and time value of money. It represents this by incorporating the following factors: 1. A risk- free rate(rf) 2. A beta(β) 3. Expected market return(rm) These components then make up a formula‚ which is used to calculate the cost of capital‚ or return(r) on an investment. The formula is: r = rf + β (rm – rf) The time value of the money is shown by the risk-free rate. This compensates
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margin by $150‚000 given a 5% gross margin and initial on investment of $10 million which is the cost of building the new factory. The savage value at the end of the project life will be $14 million. Given a 10% weighted average cost of capital‚ the following table shows the net present value that is computed for this project. Year Cash Flow PV Factor Present Value 0 (10‚000‚000) 1.0000 (10‚000‚000) 1 150‚000 0.9091 136‚364 2 150‚000 0.8264 123‚967 3
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