capital budgeting decisions is a critical factor in the long run profitability of the company. The case is about the investment decision for producing SuperTread‚ a new tire of Goodweek Tires‚ Inc. The report focuses on the Net Present Value (NPV)‚ Payback period‚ Discounted payback period‚ Average Accounting Return (AAR)‚ Internal Rate of Return (IRR)‚ Profitability Index (PI) of this project. 1.1 Origin of the Report Major AHM Yeaseen Chowdhury‚ course instructor
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days x $55/skier-day = $660‚000 Annual cash outflow = (200 days x $500/day) = $100‚000 PV of cash flows @ 14% = ($660‚000 - $100‚000) x 6.6231 = $3‚708‚936 NPV = $3‚708‚936 - $3‚300‚000 = $408‚936 The additional new lift will create value of $408‚936‚ annual return over the Economic Life of 20 years of the initial investment‚ so it is a profitable investment. Since‚ the lift is brand new‚ in the first few years the effective age of the lift will remain at zero‚ but as the lift ages
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Selecting projects based on a value-maximizing acceptance criterion; and Continually reevaluating implemented investment projects. * Since CASH is central to all decisions of the firm‚ the expected benefits to be received from the project is expressed in terms of Cash Flows and not income flows. Cash flows should be measured on an incremental‚ after-tax basis. * a) include all cash flows that occur during the life of the project * b) consider the time value of money * c) incorporate
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model with the weighted factors chosen according to some common criteria (with TELOS‚ CPM‚ etc) 1. Focus on Broad Organisational Needs • It is often difficult to provide strong justification for many IT projects‚ but everyone agrees they have a high value. “It is better to measure gold roughly than to count pennies precisely” • Three important criteria for projects: – There is a need for the project. – There are funds available for the project. – There is a strong will to make the project succeed.
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Thomas Edison State College Principles of Managerial Accounting (ACC-102) Final Project 1. Cost-volume-profit relationships (15 points) The following data are available for a product manufactured and sold by Logan Company: Compute the following: (a) Contribution margin per unit: $_______________ Solution: Computation of the Contribution margin per unit Contribution margin per unit = Selling price per unit – Variable Cost per unit Where as Selling price per unit = 212 Variable Cost per
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capital budgeting methods (net present value method‚ internal rate of return method and payback method)‚ you may have noticed that all these methods focus on cash flows. But accounting rate of return method uses expected net operating income to be generated by the investment proposal rather than focusing on cash flows to evaluate an investment proposal. Under this method‚ the asset’s expected accounting rate of return is computed by dividing the expected incremental net operating income by the initial
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Investment appraisal techniques Introduction Investment is a key part of building your business. New assets such as machinery can boost productivity‚ cut costs and give you a competitive edge. Investments in product development‚ research and development‚ expertise and new markets can open up exciting growth opportunities. At the same time‚ you need to avoid overstretching
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name for a fee. We have compared the two options to determine which marketing strategy would be in the best interest of Glaxo Italia in terms of net present value‚ rather than the IRR or payback period used previously. We have decided that co-marketing with another company would be the best option for Glaxo Italia as it has the higher net present value. Forecasting and Analysis We have decided to extend the forecasts to 2010 because although it is difficult to predict beyond 6 years‚ the typical
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lONDON SCHOOL OF COMMERCE | ASSIGNMENT | ACCOUNTING AND DECISION MAKING TECHNIQUES | | | 12/17/2009 | You are required to provide an evaluation of two proposed projects‚ both with five year expected lives and identical initial outlays of £110‚000. Both projects involve additions to AP Ltd.’s highly successful product range and as a result‚ the cost of capital on both projects has been set at 12%. The expected cash flows from each project are
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and Project B’s payback period‚ net present value‚ and internal rate of return to provide a recommendation on which project is tangible than the other. Payback period The payback period is the length of time required to break even on an investment measured in years. Where the annual cash flow is identical‚ the payback period is equal to the investment divided by the annual cash flow. The payback period emphasizes the liquidity of an investment but not its value. Caledonia Products have both projects
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