CAPITAL BUDGETING The process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing. Oftentimes‚ a prospective project’s lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark. Also known as "investment appraisal." Generating investment project proposals consistent with the firm’s strategic objectives; Estimating after-tax incremental
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both options would fail the NPV test by yielding negative results. I make this recommendation after thorough analysis of estimated cash flow and with the desire that our required 15-year life span will be amended. With the expected 9% discount rate‚ commissioning a capsize carrier for 15 years and then scrapping it as is company policy would ultimately yield a NPV of (1‚252‚916). However‚ if Ocean Carriers decided to commission its ship for 25 years‚ then the NPV would be a positive 368‚557.
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TO: General Manager of Phuket Beach Hotel RE: Investment Consultation: Planet Karaoke Pub Vs. Beach Karaoke The Phuket Beach Hotel faces development options in its future. Planet Karaoke Pub‚ a restaurant chain‚ has approached the hotel to obtain a 4 year lease to occupy a 3‚000 square foot space. Should the Phuket Beach Hotel invest in Planet Karaoke’s proposal? Or‚ should the hotel develop its own karaoke business? Kornkrit and Wanida believe Group 3 is the most equipped to handle the analysis
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$ 5‚100 2. What is the project ’s NPV? The Net Present Value is $36‚955.09 Explain the economic rationale behind the NPV. Economists found much of their analyses on a marketplace where supply and demand are based on the perceptions of present value and scarcity. The Net Present Value (NPV) are calculations used to estimate the value over a lifetime which in this case would be of Chicago Valve ’s standard petroleum valve systems. NPV allows decision makers to compare various alternatives
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http://www.netplaces.com/investing/a-look-at-the-big-picture/how-interest-rates-affect-everything.htm Clements‚ J. (2014‚ September 3). ehow.com. Retrieved October 16‚ 2014‚ from http://www.ehow.com/info_12036641_relationship-between-interest-rates-npv-irr.html Investopedia.com. (n.d). Retrieved October 17‚ 2014‚ from http://www.investopedia.com/terms/w/wacc.asp
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Exercise 2.4 (20 Points): A 1 2 3 4 5 Project Omega 6 Required Rate of Return 7 Investment 8 Cash Inflows 9 NPV = 10 11 Project Alpha 12 Required Rate of Return B C D E F G H I J Exercise 4a Net Present Value Example Comparing Two Projects Year 0 18% -$225‚000 -$190‚000 $150‚000 $190‚000 $215‚000 $175‚000 $197‚000 $70‚000 $119‚689 Formula Project Omega: =C7+NPV(B6‚D8:J8) Year 0 18% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 1 Year 2 Year 3 Year 4 Year 5 Year
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FIN370 WK3 Solutions Guide: 1. We focus on free cash flows rather than accounting profits because these are the flows that the firm receives and can reinvest. Only by examining cash flows are we able to correctly analyze the timing of the benefit or cost. Also‚ we are only interested in these cash flows on an after tax basis as only those flows are available to the shareholder. In addition‚ it is only the incremental cash flows that interest us‚ because‚ looking at the project from the point
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EAS 199A Lecture Notes: Basic Electricity Fall 2011 This course module introduces the basic physical models by which we explain the flow of electricity. The Bohr model of an atom – a nucleus surrounded by shells of electrons traveling in discrete orbits – is presented. Electrical current is described as a flow of electrons. Ohm’s law – the relationship between voltage‚ current and electrical resistance – is introduced. Learning Objectives Understanding the basic principles of electricity is
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ways to overcome those risk. To help with this process‚ financial managers can use capital budgeting techniques which have groups of calculations and sets of decision rules. The techniques that are used are called payback period‚ net present value (NPV)‚ internal rate of return (IRR)‚ and profitability index (PI) (Lasher‚ 2011‚ p. 456-458). The payback period is generally the easiest budgeting technique out of the group and provides an financial manger an estimation on how long the original cost
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Bunyan Lumber LLC Clear-cutting is a controversial method of forest management. To obtain the necessary permits‚ Bunyan Lumber has agreed to contribute to a conservation fund every time it harvests the lumber. If the company harvested the forest today‚ the required contribution would be $300‚000. The company has agreed that the required contribution will grow by 3.2 percent per year. When should the company harvest the forest? The options that are available to harvest are years 40‚ 45‚ 50
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