suggested approach. Value the economic benefits associated with a decision to eliminate the exploration and development activities of the Gulf Oil Corporation. A key question is how Socal can justify a huge premium over market value to acquire Gulf. A key objective is to understand the shareholder value implications of a corporate strategy built around investing huge amounts of capital in activities that promise largely negative net present values. Place a specific value on Gulf’s strategy of
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Budgeting I. Net Amount of Investment Acquisition cost Add: Additional working capital involved Total less Cash inflow arising from sale of old asset being replaced (net of taxes) Avoidable costs (net of taxes) Net Investment ============ Illustrative Problems: 1. The management of Brown Metal Fabricators plans to replace a forming machine that was acquired several years ago at a cost of P450‚000. The machine has been depreciated to its salvage value of P50‚000. A
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CGA-CANADA ADVANCED CORPORATE FINANCE [FN2] EXAMINATION June 2011 Marks Notes: 1. Questions 1 and 2 are multiple choice. For these questions‚ select the best answer for each of the unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example‚ if the best answer for item (a) is (1)‚ write (a)(1) in your examination booklet. If more than one answer is given for an item‚ that item will not be marked. Incorrect answers will be marked as zero
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The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the paint cans instead of purchasing them. The equipment needed would cost $200‚000‚ with a disposal value of $40‚000‚ and it would be able to produce 5‚500‚000 cans over the life of the machinery. The production department estimates that approximately 1‚100‚000 cans would be needed for each of the next five years. The company would hire three new employees
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significantly. The anticipated cash flows for the project are as follows: Year 1 $1‚100‚000 Year 2 $1‚450‚000 Year 3 $1‚300‚000 Year 4 $950‚000 You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is $3‚000‚000. 1. What is the project’s IRR? (10 pts) Using the financial calculations in Microsoft Excel‚ the IRR is 22%. 2. What is the project’s
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situation‚ its new potential investment opportunity‚ and financing options. Our recommendations are as follows: 1. Pursue the suggested new product line. 2. Seek additional funding through equity financing and reinvestment of earnings. We proceed to present our findings‚ analyses‚ and rationales behind these recommendations. Current Business Environment FMI is a small private firm specializing in manufacturing “solid state drives” (SSDs)‚ a growing segment of the technology industry. Its product
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Capital Rationing Capital rationing means that there is not sufficient finance (capital) available to support all the projects proposed in an organisation. In an ideal world any project which can earn a positive net present value or earn an internal rate of return greater than the cost of capital should be able to find a source of finance because there are rewards to the providers of capital. However‚ the world is not ideal and there may be restrictions on capital for any of the following reasons:
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CHAPTER ONE 1.0 INTRODUCTON Artificial hair is a general term used to describe the process of altering one’s natural hair appearance by adding additional hair to the natural hair or by covering the natural hair all together with human or synthetic hair pieces. An artificial hair is made of a fiber including polyethylene and polythene products. Many young ladies of today and even married women are concern about their outlook and will stop at nothing in beautifying themselves. To this extent‚ many
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School of Management Blekinge Institute of Technology THE IMPORTANCE OF THE PAYBACK METHOD IN CAPITAL BUDGETING DECISION. By Alaba Femi‚ AWOMEWE & Oludele Olawale‚ OGUNDELE Supervisor: Anders Hederstierna Thesis for the Master’s degree in Business Administration Fall/Spring 2008 THE IMPORTANCE OF THE PAYBACK METHOD IN CAPITAL BUDGETING DECISION. By Alaba Femi‚ AWOMEWE & Oludele Olawale‚ OGUNDELE A thesis submitted in partial fulfillment of the requirements for the degree
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Part A (a) The present value of all future cash flows is a factor in the calculation of Value-in-Use (AASB 136 (30)). The Telstra Ltd management makes assumptions that future operating performance (or cash flow) of the asset can be appropriately predicted based on historical performances and expected future performances (Telstra‚ p94). This complies with AASB 136 (33)‚ (34) and (35). Future net cash flows have to be discount back to present value (AASB 136 (56)). The assumption that Telstra has
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