after tax cost savings and salvage value of the system. 2. What is the project’s NPV? Explain the economic rationale behind the NPV. Could the NPV of this particular project be different for GP Manufacturing than for one of Chino Material Systems Inc.’s other potential customers? Explain. NPV = $20‚578 NPV is a measure of profitability of an investment. If NPV is positive‚ the company should accept the project. The NPV would be the same for everyone if values were the same because it is just an estimate
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(A) The payback is 35‚000/5‚000= 7 years Computation of the NPV : 15 NPV= -35‚000 + Σ 5‚000 / ( 1 + 12%)^ 15 i=1 NPV = $- 947. 67 Computation of the IRR : 15 0= -35‚000 + Σ 5‚000 / ( 1 + IRR)^ 15 i=1 IRR= 11.49% The NPV of this project is negative and the IRR is lower then the Cost of Capital (12%) Rainbow products shouldn’t go for
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years b) The discounted Payback Period is 5.58 years c) The Internal Rate of Return (IRR) of the machine is 13.87% d) The Net Present Value (NPV) is $1‚136‚020.85 e) The Profitability Index (PI) associated with the project is 1.14 If we make decision based on NPV or IRR or PI‚ we should accept this project. This is because the project has a positive NPV‚ its PI over 1 and the IRR is more than the required rate of return. All of this factors mean that the project can actually benefit the company
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symptoms become clear throughout the duration of the movie. First‚ Flounder is discovered to suffer from panic attacks. Panic attacks are sudden feelings of terror that strike without warning. Flounder usually becomes suddenly panicked whenever Ariel decides to do daring things. Panic attacks can occur at any given time‚ even during sleep. Typically‚ a person experiencing a panic attack might believe that he or she is having a heart attack. The fear and terror that a person experiences during
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943 .890 Present value $6‚020 $4‚880 $9‚532 NPV $20‚432 11. a. Year 0 Year 1 Year 2 Year 3 Year 4 Before-tax cash flow $(500‚000) $52‚500 $47‚500 $35‚500 $530‚500 Tax cost (7‚875) (7‚125) (5‚325) (4‚575) After-tax cash flow 44‚625 40‚375 30‚175 525‚925 Discount factor (7%) .935 .873 .816 .763 Present value $(500‚000) $41‚724 $35‚247 $24‚623 $401‚281 NPV $2‚875 Investor W should make the investment because NPV is positive. b. Year 0 Year 1 Year 2 Year
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(NEM). First of all‚ under normal condition‚ this project could contribute around $73 million to the shareholder. The return will be more than 85% over the entire period. Furthermore‚ this project is quite stable because it can deliver a positive NPV for NEM when the iron ore price above $65.83 which is around 17% lower than basic price and more than 50% lower than the current price‚ smelting‚ refining and freight cost below $76.3 just below 60% higher than basic condition‚ the EBIT has to drop
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rate is 10 percent. The ranking of projects differs‚ depending on the use of IRR or NPV measures. Which project should be selected? Why is the IRR ranking misleading? Using the IRR method will result in project Q being selected over P due to its higher rate of return. Using the NPV method would result in choosing project P because of its higher NPV. When there are mutually exclusive project‚ NPV method would be preferred. IRR is misleading because it ignores the absolute amount from the
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CHAPTER 12 RISK TOPICS AND REAL OPTIONS IN CAPITAL BUDGETING FOCUS Traditional capital budgeting techniques compute point estimates of NPV and IRR with no measure of variability. Hence they don’t give managers the information necessary to include a tradeoff between risk and expected return in their decisions. This chapter is concerned with modern approaches to incorporating risk into capital budgeting. The techniques considered include probabilistic cash flows‚ risk adjusted discount rates
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Compute the NPV of both projects. Which would you recommend? What if they are not mutually exclusive? NPVMMDC = 7‚150 NPVDYOD = 7‚298 Based solely on the NPV analysis we would suggest to implement the DYOD project as it has a higher NPV. If both projects weren’t mutually exclusive‚ we would suggest implementing both as both have a positive NPV. 3. Compute IRR and payback period for both projects. Based on each criterion‚ which project would you recommend? If this differs from NPV analysis‚ explain
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to determine the viability of projects and decisions based in the initial required investment. The financial industry has many standards regarding these methods‚ with the most commonly used being Internal Rate of Return (IRR) and Net Present Value (NPV). Each method encompasses positives and negatives; however if either are used without fully understanding what their prospective results reveal‚ mistakes can be made and under-estimations of return will happen. In a recent case Lockheed Martin chose
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