000 and a 50 percent chance of a $13‚000 cash inflow. If the appropriate cost of capital is 10 percent‚ what is the project ’s expected NPV? Answer : $35 To find the NPV of the first outcome: NPV = -$500 - 1000/1.1 - 1000/(1.1)^2 + 16000/(1.1)^3 = $2‚347.48 The other NPVs can be found similarly. E(NPV) = 0.24($2‚347) + 0.24($94) + 0.32(-$1‚409) + 0.20(-$500) = $35. (The following information applies to the next two problems.) 3. Diplomat.com
Premium Net present value Cash flow
three years‚ which projects would you accept? “A‚ B‚ C” All the projects meet the given cutoff period‚ thus‚ every project (A‚ B‚ C) is acceptable. (In terms of NPV‚ since B has the highest NPV‚ B is the best option.) d. If the opportunity cost of capital is 10%‚ which projects have positive NPVs? “B & C” have the positive NPV at the capital cost of 10%. e.“If a firm uses a single cutoff period for all projects‚ it is likely to accept too many short- lived projects.” True or false?
Premium Net present value Internal rate of return
being the best single method for evaluating capital budgeting projects. c. The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects. d. The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects. e. The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital
Premium Net present value Capital budgeting Internal rate of return
Introduction Schering Plough is a large pharmaceutical company who is about to lose the patent to its largest revenue generating drug‚ Claratin. The loss of exclusive rights to this product could decrease Schering Plough’s revenue by over 90%. Schering Plough in hindsight of what will become of their financial position with the expiration of this patent has decided that it must develop a new product which uses Loratadine‚ the main component of Claratin. The two drugs the company wishes to
Premium Net present value
and a cost of capital of 12%. What is the project’s NPV? (Hint: Begin by constructing a time line.) What’s the project’s IRR? NPV = Cash Flow in Period n/ (1 + Discount Rate)n NPV = $52‚125 + 12‚000/(1 +.12)8 = 4‚846.60 12‚000/(1 +.12)7 = 5‚428.19 12‚000/(1 +.12)6 = 6‚079.58 12‚000/(1 +.12)5 = 6‚809.13 12‚000/(1 +.12)4 = 7‚626.21 12‚000/(1 +.12)3 = 8‚541.35 12‚000/(1 +.12)2 = 9‚566.33 12‚000/(1 +.12)1 = 10‚714.29 -52‚125 Add each NPV to get NPV = $7‚486.68 IRR in excel – CF0 = -52‚125‚ CF1-8= 12
Premium Net present value Internal rate of return
capital and investment to company expenditure which facilitates the determination of the concerned firm ’s investments. Doubtlessly‚ firms will benefit from modern financial technology. The most common ways of investment appraisal are payback‚ IRR and NPV methods; each of them has its own strengths and weaknesses from a perspective of decision making. In this essay‚ the background and methods of capital investment appraisal will be discussed‚ and then will argue the comparison of different methods.
Premium Net present value Investment
The net present value (NPV) rule can be best stated as: An investment should be accepted if the NPV is positive and rejected if it is negative. The discount rate that makes the net present value of investment exactly equal to zero is b. Internal rate of return. Which of the following statements is true? If the financial manager relies on NPV in making capital budgeting decisions‚ she acts in the shareholders’ best interests. Net present value is equal to zero when the interest rate used to discount
Premium Net present value Rate of return
acceptance of other projects c. c. 1. Define the term net present value (NPV). The net present value is based upon the discounted cash flow technique. To implement this approach find the present value of each cash flow‚ including the initial cash flow‚ discounted at the project’s cost of capital‚ r. Sum these discounted cash flows; this sum is defined as the project’s NPV. c.1b. What is each franchise ’s NPV? |Expected Net Cash Flow
Premium Net present value Internal rate of return Cash flow
the projects NPV and IRR given the size of the investment‚ opportunity market/growth‚ and with the overall goal of adding 100 new stores a year while maintaining. The Barn was my first choice because it had the highest IRR and second highest NPV given a not so large investment. Whalen Court has the highest NPV and offers favorable market share opportunities and demographics. These first two are considered good options to continue Targets growth. Gopher Place has attractive IRR and NPV comparable to
Premium Wal-Mart Target Corporation Big-box store
| a. Calculate each projects payback period‚ Discounted payback period‚ net present value (NPV)‚ internal rate of return(IRR) and Profitability Index b. Which project or projects should be accepted if they are independent? c. Which project or projects should be accepted if they are mutually exclusive? d. How might a change in the cost of capital produce a conflict between the NPV and IRR ranking of these two projects? Would this conflict exist if k were 5%? e. Why does
Premium Net present value