Calculate the net present value for Project A and Project B using a risk discount rate of 10% per annum. Using net present value as a criterion‚ which project is preferable? (b) Find the internal rates of return for Project A and Project B‚ and hence determine which project is more favourable using this criterion. 1 Solution (a) For Project A‚ the net present value (in $000) is: NPVA (0.10) = −150 − 250v − 250v 2 + 1000v3 = 167.4 For Project B‚ the net present value (in $000) is:
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Answer all questions Question 1 An industrial product may be manufactured by two methods of production. Using Method X‚ fixed costs are RM6‚540‚000 per period and variable costs are RM57 per unit. Using Method Y‚ fixed costs are RM7‚800‚000 per period and variable costs are RM45 per unit. a) Calculate the level of output per period for which the total costs are the same. (3 marks) b) Calculate the total cost per period for Method X at this output. (2 marks) c) State
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great challenges in communicating the relevant value for an organisation. However‚ they are becoming increasingly more important in an environment where goodwill and other intangible assets are making up larger components of business purchase/combination prices. In determining the correct value of goodwill in the financial statements‚ there are three bases of measurement in accounting that can be applied; historical cost‚ market value and net present value. Each method has its own costs and benefits
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Net Present Value Net Present Value (NPV) is used in capital budgeting to analyze the profitability of an investment or project. NPV is found by subtracting the present value of the after-tax outflows from the present value of the after-tax inflows. Investments with a positive NPV increase shareholder value and those with a negative NPV reduce shareholder value. In order to compute the NPV for Worldwide Paper Company‚ we have to calculate the cash flow in capital budgeting of the project as below
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CASE 2: VALUING CAPITAL INVESTMENT PROJECTS CORPORATE FINANCE GROUP Y Growth Enterprises‚ Inc When valuing any project‚ the free cash flows must be determined in order to be able to successfully implement any method of capital budgeting. Growth Enterprises is currently considering four projects. Each has an equal required initial investment of $10‚000‚000 which is followed by a set of cash flows different for each project. Depreciation figures for each project were calculated on a straight-line
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monitoring project review Question 3 2 / 2 pts Which capital budgeting technique is preferred in all major industrialized countries? Which capital budgeting technique is preferred in all major industrialized countries? net present value internal rate of return payback period none of the above Correct! Question 4 2 / 2 pts Why is it believed that Japanese companies prefer the payback period over the discounted cash flow methods for evaluating
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used as being the Net Present value (NPV) method‚ the Internal Rate of Return (IRR) method‚ the Payback method‚ and the Accounting Rate of Return (ARR) method. Conversely‚ Brealey‚ Myers and Allen (2011) proposes that the NPV and IRR methods are considered prestige compared to the ARR and the Payback Methods‚ as they take into account the time value of money. Thus‚ the following project evaluation will focus on using the NPV and IRR methods. NPV Method: The Net Present Value method discounts future
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period. Payback period 3. Answer: d Diff: E A major disadvantage of the payback period is that it a. b. c. d. e. Is useless as a risk indicator. Ignores cash flows beyond the payback period. Does not directly account for the time value of money. Statements b and c are correct. All of the statements above are correct. Chapter 10 - Page 1 NPV profiles 4. Answer: b Diff: E Projects A and B have the same expected lives and initial cash outflows. However‚ one project’s
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Table of Contents Section Pg Contents 1 Introduction 2 Background 3 Methods 4 Comparison and modification 7 Conclusion 9 References 10 Introduction With the development of business‚ more and more techniques have been widely used into companies
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ACCT505 Part B Capital Budgeting problem Data: Cost of new equipment Expected life of equipment in years Disposal value in 5 years Life production - number of cans Annual production or purchase needs Initial training costs Number of workers needed Annual hours to be worked per employee Earnings per hour for employees Annual health benefits per employee Other annual benefits per employee-% of wages Cost of raw materials per can Other variable production costs per can Costs to purchase cans - per can
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