A. PALAN CONTENTS Introduction…………………………………………………………………….………2 Define Capital Investment Appraisal…………………………….………………….…2 Discounted cash flow methods……….………………………….………………….…4 Explanation of NPV…………………… ...................................................................…4 Explanation of IRR…………….……………………….…….……..…………………5 Advantages and disadvantages...……..……………………………………….……….5 Project calculations..................................
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For conventional cash flow‚ NPV takes the present value of all cash inflows over years 1 through n and subtracts from that the initial investment at time zero. The formula for the net present value of a project with conventional cash flows is: NPV = present value of cash inflows - initial investment 9-5 Acceptance criterion for the net present value method is if NPV > 0‚ accept; if NPV < 0‚ reject. If the firm undertakes projects with a positive NPV‚ the market value of the firm should
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2. The modified IRR (MIRR) method has wide appeal to professors‚ but most business executives prefer the NPV method to either the regular or modified IRR. a. True b. False 3. A firm should never undertake an investment if accepting the project would cause an increase in the firm’s cost of capital. a. True b. False 4. A decrease in the firm’s discount rate (r) will increase NPV‚ which could change the accept/reject decision for a potential project. However‚ such a change would have
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1 NPV—Mutually exclusive projects Hook Industries is considering the replacement of one of its old drill presses. Three alternative replacement presses are under consideration. The relevant cash flows associated with each are shown in the following table. The firm’s cost of capital is 15%. a. Calculate the net present value (NPV) of each press. b. Using NPV‚ evaluate the acceptability of each press. c. Rank the presses from best to worst using NPV. PERSONAL FINANCE PROBLEM P9–11 Long-term
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Due Friday‚ November 15th at 1155 PM Kayla and Zhejia have always wanted to start their own consulting firm. Kayla and Zhejia have the opportunity to purchase an existing consulting firm for 500‚000. The purchase price of 500‚000 would be allocated 400‚000 for the existing businesss building and 100‚000 for the land on which the building sits. They plan to work for 15 years and then retire after selling their business to new owners. Start-up costs would include 40‚000 in working capital which
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performance measures (NPV‚ IRR‚ MIRR and Payback period) to decide whether to buy or build the technology. First of all‚ I use the given data to make the assumptions for both buy and build analysis. Next‚ I use the assumptions to calculate the after-tax cash flow. Last but not the least‚ I have the after-tax cash flow and I use excel to calculate the NPV‚ IRR‚ MIRR‚ and Payback period. From NPV perspective‚ both buying and building the technology are acceptable because these two projects NPV is positive.
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1. Using a spreadsheet‚ determine the NPV of the acquisition of Skates’n’Stuff. Based on your numerical analysis‚ should Blades establish a subsidiary in Thailand or acquire Skates’n’Stuff? In Excel (have attached)‚ the acquisition NPV is $4‚121‚929.95‚ and establishing a new subsidiary NPV is $8‚746‚688. Other point is Blades acquires the company‚ it could begin sales immediately and would not require an additional year to build the plant in Thailand‚ so the action can save cost. Thus‚ the establishment
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Robert Carper (International Exchange Program) Pratyush Fnu (International Exchange Program) Yan Guo (International Exchange Program) Zejian Yang (International Exchange Program) Groupe Ariel S.A. Abstract Groupe Ariel is a company that manufactures and sells printers‚ copiers and other document production equipment. The case focuses on an investment project in the company’s Mexican subsidiary that would expand operations into a new market‚ something it been slow to do in the past. Groupe Ariel
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NEW HERITAGE DOLL COMPANY Capital Budgeting NEW HERITAGE DOLL COMPANY Capital Budgeting Brief Case Brief Case Brief Case Brief Case Brief Case Brief Case Brief Case Brief Case To: CFO (New Heritage Doll Company) From: Date: 11/16/12 RE: NEW HERITAGE DOLL COMPANY To: CFO (New Heritage Doll Company) From: Date: 11/16/12 RE: NEW HERITAGE DOLL COMPANY Here a composite report is advanced on the toy industry‚ New Heritage Doll Company and the evaluation of
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implemented within organizations is defined and reported. Key terms related to capital budgeting are also defined. Risk analysis based on the Net Present Value (NPV) is performed on the salvage values before and after sales tax values along with the different sale ranges. Keywords: NPV‚ NPV Profile‚ NPV‚ IRR‚ multiple IRRs‚ ranking conflict of NPV vs. IRR‚ payback period‚ profitability index‚ discount rate‚ cost of capital concept‚ cash flow analysis‚ cash flow timeline‚ conventional cash flow stream
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