“Internal rate of return (IRR) is the discount rate that gives the project a zero NPV” (McLaney‚ 2006). It is a good choice to use for investment projects. There is a formula for the internal rate of return: (A is the lower discount rate and B is the higher rate‚ a is the NPV at the lower rate and b is the NPV at the higher rate.) For example the Net Present Value (NPV) is 88 when the discount rate is 20%‚ and the NPV is 12 when the discount rate is 30%. Therefore the IRR in this situation is 28
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not recommend that the company invest in the project named Goliath Facility. In my analysis‚ I utilized some of the more popular valuation techniques to guide my decision: (i) Payback Method (ii) Discounted Payback Method (iii) Net Present Value (NPV)‚ (iv) Internal Rate of Return (IRR) and (v) Profitability Index. Results of Analyses I outline below the various techniques of assessment‚ the results and the rationale for accepting or rejecting the investment. 1. Payback Method – The investment
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Compute the NPV of Ariel-Mexico in pesos. How should this NPV be translated into Euros? Assume expected future inflation for France is 3% pa. 2.Compute the NPV in Euros by translating the project’s future peso cash flows into Euros at expected future spot exchange rates. Note that Ariel’s Euro hurdle rate for a project of this type was 8%. Again‚ assume that annual inflation rates are expected to be 7% in Mexico and 3% in France. 3.Compare the two sets of calculations and the corresponding NPVs. How and
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Gopher Place‚ and Remodeling of the Stadium to the Capital Expenditure Committee (CEC). The Barn promised the highest NPV compared to its low investment cost‚ and holds the highest NPV even at the worst-case scenario. The Gopher place also offered a high NPV with a low investment cost with the second highest NPV at worst-case scenario. The Stadium Remodel yielded the highest NPV to Investment ratio while having the highest median income market with the highest percentage of college graduates. These
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Chapter One Basic Areas of Finance: 1. Corporate Finance = Business Finance 2. Investments a. Work with financial assets such as stocks and bonds. b. Value of financial assets‚ risk verses return and asset allocation. c. Job opportunities. 3. Financial Institutions a. Companies that specialize in financial matters. i. Banks – Credit unions‚ savings‚ and loans. ii. Insurance Companies iii. Brokerage Firms b. Job Opportunities. 4. International Finance a. An area of specialization within each of the
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automates manual intensive process. Questions: 1. Assess the economic benefits of acquiring the Vulcan Mold-Maker machine. What is the initial outlay? What are the benefits over time? What is an appropriate discount rate? Does the net present value (NPV) warrant the investment in the machine? Assume that with ordinary maintenance‚ the semi-automated equipment could be operated for two more years beyond its depreciable life. Given: Total Cost New Machine = 1‚010‚ 000 Euros Depreciated over 8
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(10-8) NPVs‚ IRRs‚ and MIRRs for Independent Projects Edelman Engineering is considering including two pieces of equipment‚ a truck and an overhead pulley system‚ in this year’s capital budget. The projects are independent. The cash outlay for the truck is $17‚100 and that for the pulley system is $22‚430. The firm’s cost of capital is 14%. After-tax cash flows‚ including depreciation‚ are as follows: Year Truck Pulley 1 $5‚100 $7‚500 2 $5‚100 $7‚500 3 $5‚100 $7‚500 4 $5‚100 $7‚500 5 $5
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be sold at this value. B – In this case it is best for the company to use the option to the land acquisition. By calculating the NPV the option is worth $-852‚093.66. Buying the land without the option would bring the company back to $-900‚000.00. We used a discount rate of 6%‚ as this is linked with the appreciation of the land annually. The calculation of the NPV can be found in Appendix A. Question 2 A – The R&D cash flows are $48‚000 annually for the years 1998‚ 1999 and 2000. In 1996
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two investment options yielded the decision that Corporation B is the company that our company has decided to acquire with a $250‚000 initial outlay. We have conducted 5-year income cash flow projections. Our company determined the Net Present Value (NPV) as well at the investment’s internal rate of return (IRR). When making a decision to purchase or invest in a company‚ a decision maker needs all the necessary information to fully understand what he is investing in. Investing carries a significant
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4 $24‚000 5 $24‚000 6 $32‚000 a) What are the investment’s payback period‚ IRR‚ and NPV‚ assuming the firm’s WACC is 10%. b) If the firm requires a payback period of less than 5 years‚ should this project be accepted? Answer: Yes it should accept the project because the payback period for the project meets the less than five years requirement with 4.13 years. c) Based on the IRR and NPV rules‚ should this project be accepted? Be sure to justify your choice. Answer: Yes the
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