FIN553 Advanced Coporate Finance Case Study: Penelope’s Personal Pocket Phones Group 2 Brian Erber‚ Jaime Carreno‚ Wenliang Zhang‚ Xue Liu (Introduction) Background info about the project. In order to evaluate the NPV of the first-generation phone (project) ignoring the possibility of investing in the second-generation phone (project)‚ we projected the free cash flows (FCF) of the first-generation phone through 2001 to 2006. The total FCF was calculated as EBIT plus deprecation
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year 1; $13‚795 in year 2; and $6‚388 in year 3. Therefore‚ NPV of this scenario is $8‚903.50 and IRR is 29%. On the other hand‚ licensing the artist’s music would result in cash flows of ($26‚371) in year 0; $36‚045 in year 1; $9‚790 in year 2; and $918 in year 3. Therefore‚ NPV of this scenario is $14‚269.98 and IRR is 61%. Based on these analyses alone‚ licensing Roscommon’s music is the most lucrative decision path to take. The NPV and IRR demonstrate that this path can produce double the
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Question: Budget acts as planning and monitoring tools. Critically evaluate. A budget is a financial plan for the future concerning the revenues and costs of a business. However‚ a budget is about much more than just financial numbers. Without a budget‚ the business owner is literally shooting in the dark when it comes to trying to plan expenditures for the business and match them to sales revenue. Budget is not only a plan of action for a business; it is also a tool for monitoring performance
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Solution to Case 23 Evaluating Project Risk It’s Better to Be Safe Than Sorry! Questions: 1. What seems to be wrong with the way the NPV of each project has been calculated? Indicate without any calculations‚ how Pete and John should go about recalculating the projects’ NPVs. The NPV of each project has been calculated by discounting the cash flows at the 8% before-tax cost of debt. This is incorrect. Since the company has debt‚ preferred stock and common
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importance to the recovery time. ii. The analysis of the IRR: The merit of this measurement is taking into account of the time value of the money and the term structure of the cash flow. It has strong links with NPV. We can easily see this correlation from its definition. NPV is an absolute value‚ but IRR is a relative value. So it can better reflect the efficiency of the
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Define working capital. What could happen if an organization neglected to manage its working capital? What techniques would you recommend for your organization in order to appropriately manage their working capital? Why? “ Working capital is defined as the difference between current assets and current liabilities” (SBA‚ 2013). It’s the total amount of cash or inventory that can quickly be converted into cash or assets in order to grow an organization. Working capital is calculated by subtracting
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2011-12 Sem 2 Written Assignment Name: Shi Yu ID: 10821504d Tutor: Ho Ming Lawrence FUNG Q1: Definition of efficient market: The efficient market is defined as a market where competition among investors should work to eliminate all positive-NPV trading opportunities or‚ equivalently‚ that securities with equivalent risk should have the same expected return based on their future cash flows‚ given all information that is available to investors. Definition of arbitrage: It is known as the
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Question 1: How would you describe HPL and its position within the private label personal care industry? HPL is a major player in private label personal care industry. Private labels hold around 19% (around $4 billion) of personal care industry (around $21.6 billion). HPL holds approximately 28% share of this private label personal care market. Even though HPL is a small player in overall private label market with the revenues of approximately $700 million compared to overall private label market
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RISKS LOCATION RISKFlooding due to typhoons may occur since they have decided to put up the hatchery near the coastal waters of Calauag Bay. Thus‚ overflowing of the fishponds may occur which would then lead to the fingerlings‚ juveniles‚ mature groupers to be carried by the floods. Furthermore‚ most aqua culture development centers are in the Visayas region. Thus‚ if unforeseen problem occurs in the growth of their fishes‚ they are far from the help of the experts in aqua culture. INPUT RISK
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Cost-reduction investment- installing more efficient equipment‚ Mandatory investment- government regulated‚ safety material. NPV = PV of inflows – Cost= Net gain in wealth.. If projects are independent‚ accept if the project NPV > 0. If projects are mutually exclusive‚ accept projects with the highest positive NPV‚ those that add the most value. In this example‚ accept S if mutually exclusive (NPVS > NPVL)‚ and accept both if independent. [pic] [pic] [pic] [pic] Quiz Internal rate of return‚ IRR
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