discounting cash flows and the analysis of the NPV of both projects. An investment with a positive and high NPV is profitable investment and is more likely to me accepted by the company. A positive NPV means that the investment creates value and therefore the project generate enough cash flow to cover the cost and provide enough returns to the shareholders. In the case of a negative NPV‚ the investment should not be supported. Through a focus on NPV results of both projects we can conclude that the
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little differently; therefore‚ be prepared! a) Under which conditions would the IRR and the NPV rank projects differently? **LIST** i) Significant differences in the sizes of the projects ii) Significant differences in the timing of the cash flows of the projects. b) Under which conditions would there be a call for different project selections after obtaining the IRR and NPV project rankings? **LIST** iii) Mutual exclusion (selection of one precludes the selection
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capital is 12%. a. What is the project’s PP (time thu hồi dc vốn)? b. What is the project’s DPP? c. What is the project’s NPV? d. What is the project’s IRR? a) PP = 52‚125/12‚000 = 4.34 b) 52‚125 – 12‚000/1.12 – 12‚000/1.12^2 – 12‚000/1.12^3 – 12‚000/1.12^4 – 12‚000/1.12^5 – 12‚000/1.12^6 = 2788 PV (7) = 12000/1.12^7 = 5428 DPP = 6 + 2788/5428 = 6.5 years c) NPV = 12‚000*[(1-1/(1+0.12)^8]/0.12 – 52‚125 = 7486.7 d) 12‚000 * [1-1/(1+IRR)^8]/IRR – 52‚125 = 0 => IRR = 16% Exercise 2:
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Under what circumstances will the IRR and NPV rules lead to the same accept-reject decisions? When might they conflict? Using the IRR and NPV rules will always yield the same decision as long as two conditions are met: the project or investment’s cash flows are conventional and the project or investment is independent. If the initial cash flow is negative and all the subsequent cash flows are positive‚ the cash flows are said to be conventional. If at any point any of the 2nd or later cash flows
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new factory. 2. Sales of $3 million a year that will result in an increase of $150‚000 in gross margin giving the company a 5% gross margin. 3. Value of salvage at the end of the life of the project of $14 million. NPV Computation The following table displays the NPV computation with a 10% weighted average cost of capital for this project. Year | Cash Flow | PV Factor | Present Value | 0 | (10‚000‚000) | 1.0000 | (10‚000‚000) | 1 | 150‚000 | 0.9091 | 136
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cost of a project is $100‚000. Sales are for five years‚ starting next year. The company earns $0.50 per sale‚ and expects to sell 60‚000 units per year. If the interest rate is 5%‚ the NPV is -100‚000 +129‚884 = 29‚884. At what level of sales does the project break even in terms of NPV? Set PV = -100‚000 (so that NPV = 0) and find the amount of sales per year. The answer is sales in dollars = 23‚097 so that sales in units = 46‚194. Break-even analysis is a good starting point‚ but it ignores some
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Please see Exhibits below for a snapshot of the capital budget and NPV values. This information seemed to be very promising for the project in general. However‚ our continued analysis showed the project to be very sensitive to the sales price per unit of the refrigerator. We used the average demand scenario to produce a sensitivity analysis and found that with just a 5% decrease in the sales price of the refrigerator the NPV quickly dipped into a negative value thus showing the project to be
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Sensitivity analysis is a technique that indicates exactly how much a project’s profitability (NPV or IRR) will change in response to a given change in a single input variable‚ other things held constant. Sensitivity analysis begins with a base case developed using expected values (in the statistical sense) for all uncertain variables. Then‚ each uncertain variable is usually changed by a fixed percentage amount above and below its expected value‚ holding all other variables constant at their expected
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Analytical chemistry Analytical chemistry is the branch of chemistry that deals with the separation‚ identification and determination of components in a sample. Analytical chemistry can be divided into two branches‚ qualitative and quantitative. Qualitative analysis It deals with the identity of the constituents that are in an analytical sample. Quantitative analysis It deals with the determination of how much of a given substance is in the sample. The quantitative analyses are classified
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bang is the nuetrons. Protons plus electrons = hydrogen. Hydrogen fuses the helium. There are no stable atoms with 5 or 8 nucleons (hydrogen would have 5‚ helium would have 8)‚ therefore fusion stops at helium. Normal steller processes Elements form by fusion of lighter elements and heavier elements into heavier elements. They release energy. Elements with mulitples of 4 nucleons are most abundant because they combine helium. Fusion stops at iron Supernova processes R‚ S‚ P processes form elements
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