Corporate Finance Capital Budgeting Course Outline CAPITAL BUDGETING Course outline Key Principles in Capital Budgeting: Criteria for Investment Projects Net Pesent Value Internal Rate of Return Payback Profitability Index Finding Cash Flows Maria Ruiz 1 Financial Management Financial management is largely concerned with financing‚ dividend and investment decisions of the firm with some overall goal in mind. Corporate finance theory has developed around the goal of shareholder
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alternatives exist for organizations to make their capital budgeting (CB) decisions or the alternative projects can be ranked in line with the benefits arrived in terms of profitability and the revenue generated. (Gitman‚ 2008). Net present value (NPV)‚ internal rate of return (IRR)‚ accounting rate of return (ARR) and PBK are generally described as the most commonly used CBTs. The two former techniques are based on the cash-flow concept and are usually categorized as sophisticated techniques. Bierman
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Net present Value‚ Mergers and acquisitions Abstract Main objective of undertaking this to report was learn about NPV present value (NPV) method to make capital budgeting decision(Google NEW Project) and success factors involved in mergers and acquisitions(Google-Groupon Case). Answers to the Assignments Part I: Google should go ahead with the new project. Part-II: Google’s acquisition of Groupon would have been win -win situation for both corporations Now I will discuss both parts in detail
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Question 1 (a) Simons (1999‚ pg 768) describes intrinsic motivation as “desire to engage in behaviours or actions in anticipation of internally- generated rewards such as personal feelings of accomplishment” and extrinsic motivation Simons describes as (1999‚ pg 766) “desire to engage in behaviours or actions in anticipation of tangible rewards‚ such as money or promotion”. Extrinsic motivation is created by financial incentives. An incentive as Simons (1999‚ 767) describes as being “a reward
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Payback period is the time it takes to recoup your initial investment on a project based upon the future cash flows the project is expected to generate. In question one‚ the synthetic resin has a payback period of 2.50 years where as the epoxy resin has a payback period of 1.50 years‚ meaning the company will recoup its initial investment one year sooner with the epoxy resin than with the synthetic resin. If the company were determining which project to choose based solely on the payback period‚
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write a brief summary of your findings in about 100 words for each problem. 1) Rainbow Products 20 points | Machine Purchase | Machine plus service contract | Enhanced Machine | Payback period | 7 Years | 7.78 Years | 7.65 Years | NPV | ($945.68) | $2‚500.00 | $15‚000.00 | IRR | 11.49% | 12.86% | 15.43% | Decision (Yes/No) | NO | YES | YES | We would advise Rainbow Products to not purchase the paint-mixing equipment unless they decided take on the additional $500 per year
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1. I am asked to compute the before-tax Net Present Value or NPV of a new ski lift for Deer Valley Lodge and advise the management there of the profitability. Before I am able to make this calculation there are a few calculations that I will need to make first. First the total amount of the investment‚ this will be the cost of a lift itself $2 million plus the cost of preparing the slope and installing the lift $1.3 million. Thus the investment amount for one lift is $3.3 million. Next I
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Adjusted Present Value Normal NPV calculation: NPV = −investment + CFN CF1 CF2 + +L+ 2 (1 + WACC) (1 + WACC) (1 + WACC) N where‚ in a simple situation: equity debt WACC = equity + debt (cos t of equity ) + equity + debt (cos t of debt )(1 − tax rate ) Using debt for financing has a tax advantage in that interest payments are tax deductible. This tax deductibility is a source of value for the firm. In the normal NPV calculation‚ this additional value is accounted
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return expected to be received from alternate investments forgone. NPV – Present value of cash flows less the cost of acquiring the asset acquire assets with positive NPV‚ positive NPV = good project Rate of Return = profit/cost or investment (good investments have higher rate of return than opportunity cost) Higher discount rate ( lower discount factor (lower NPV Investment Decision Rules: 1. accept if positive NPV 2. accept w rate of return > opp cost or hurdle rule PV = C1*
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About Whirlpool Corporation: 1989: Whirlpool entered European Markey by buying a 53% stake in the appliance division of Dutch based Philips Electronic for $ 470 million .Formed a joint venture firm named Whirlpool International BV (WIBV). 1990: Added the whirlpool brand name to the Philips product line. 1991: whirlpool bought the rest of the Philips stake (47%) for $ 600 million to become the sole owner of Whirlpool International BV. 1991-1999: WIBV developed three pan European brands
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