the resulting $25‚517 NPV shown in Part 5 is called the base-case NPV. Now we ask a series of "what if" questions: "What if unit sales falls 30 percent below the most likely level?" In our sensitivity analysis we hold the other variables at their base case levels and then examine the situation when the key variables change. Each new calculated NPV is plotted on the graph in Part 6 to show how sensitive NPV is to changes in each variable. The table below outlines the NPV figures that we used to
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the NPV and IRR for the above two projects‚ assuming a 13% required rate of return. b. Discuss the ranking conflict. c. What decision should be made regarding these two projects? Answer: a. NPV of A = $211‚305 NPV of B = $401‚592.64 IRR of A = 16.33% IRR of B = 15.99% b. The later cash flow of B causes its lower IRR even though it has the higher NPV. c. B should be accepted because it is the mutually exclusive project with the highest positive NPV. Keywords: NPV‚ IRR
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recession‚ and as a result interest rates and money costs generally are relatively low. The WACC for two mutually exclusive projects that are being considered is 8%. Project S has an IRR of 20% while Project L ’s IRR is 15%. The projects have the same NPV at the 8% current WACC. However‚ you believe that the economy is about to recover‚ and money costs and thus your WACC will also increase. You also think that the projects will not be funded until the WACC has increased‚ and their cash flows will not
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Calculating Returns Suppose a stock had an initial price of $92 per share‚ paid a dividend of $1.45 per share during the year‚ and had an ending share price of $104. Compute the percentage total return. The return of any asset is the increase in price‚ plus any dividends or cash flows‚ all divided by the initial price. The return of this stock is: R = [($104 – 92) + 1.45] / $92 R = 0.1462 or 14.62% Calculating Returns Rework the problem above‚ but this time assuming the ending
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subsequent returns and related risks. The analysis will include the necessary financial models NPV‚IRR and Sensitivity by calculating the discounted cash flows‚ but also take into consideration economic characteristics (PESTLE) as well as other driving forces in relevant to the mobile phone industry such as competition (Porter’s Five Forces ) 2 Recommendations (See Figures 1 & 2 for visual representation of NPV and IRR) The ethos of Sky-Blue’s business activities are based on technological advances
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Table of contents: Page no. 1. Introduction 1 2. Investment appraisal 2 3. Payback method 3 4. Present value (PV)‚ future value (FV) and net present value (NPV) 5 5. Project 1 6 6. Comparing projects 11 7. Conclusion 12 8. References 13 9. Bibliography 14 Introduction: In 21st century business is much more developed and competitive as well with the presence of so many competitors
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without adjusting the cash flows for inflation causing an undervaluation of the project. 2. Caselet 10 b. By using the NPV calculation‚ Western is only using the known information in an all or nothing scenario. While useful in passive investing‚ such as the bond market‚ this type of calculation leaves out many factors in the budgeting for projects. By using NPV‚ the firm is ruling out the active management of projects‚ and the decisions that can accompany that management. In the management
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1. Which Projects would you recommend Handstar pursue based on the NPV approach and why? (15 marks) 2. Assume the founders weigh a project’s NPV twice as much as obtaining/retaining a leadership position and making use of the Internet. Use the weighted factor scoring method to rank these projects. Which projects would you recommend Handstar pursue? (10 marks) 3. In your opinion‚ is it justified to hire an additional software development engineer for 50% of time (part-time)? Discuss this on the
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independent and mutually exclusive projects? Between projects with normal and nonnormal cash flows? C. (1) Define the term net present value (NPV). What is each project’s NPV? C. (2) What is the rationale behind the NPV method? According to NPV‚ which project(s) should be accepted if they are independent? Mutually exclusive? C. (3) Would the NPVs change if the WACC changed? Explain. D. (1) Define the term internal rate of return
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include: Operating Cash Flows (OCF)‚ Net Present Value (NPV)‚ Internal Rate of Return (IRR)‚ and Sensitivity Analysis. The analysis suggests that Hansson should be very cautious regarding the investment proposal that is developed by his manufacturing team. Although the projections and analysis of the project for the next 10 years proposed by Robert Gates seems reasonable and will generate positive NPV and an IRR greater than the discount rate‚ NPV is very sensitive with regard to unit volume and unit
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