UNIVERSITY OF CALIFORNIA‚ SAN DIEGO Extension Division BUSA 40435 Financial Decision Making Summer 2011 Section# 082608 Instructor: George A. Haloulakos‚ MBA‚ CFA Contact Info: 425/241-5016‚ Haloulakos@gmail.com Welcome to UCSD Extension’s Financial Decision Making course. My basic approach to the subject matter is that theory which cannot be practiced is not good theory‚ BUT practice that is not based on theory [i.e.‚ a logical‚ independently verifiable analytic framework] is
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How to Write Law Exam Answers Personal notes made with reference to Legal Reasoning And Legal Writing by Richard K. Neumann‚ Jr. What a teacher looks for * Your understanding of how to use the rules * Your understanding of what the law is trying to accomplish with them Two kinds of questions * Hypothetical situations * Response to issue/statement Rubric of grading: what a teacher looks for when marking * Issue spotting * Knowledge of legal rules * Ability to analyse
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factors as detailed on part three of this document. The NPV’s of all these projects are positive‚ a positive NPV contributes favorable to the share price or share value. The Internal Rate of Return of these entire projects are below the prototype store IRR which is a benchmark project. The IRR is an alternative to NPV however if the NPV is positive and the IRR is not what is desired‚ the NPV may supersede in making an investment decision. The IRR is what is expected based on internal factors. Projects
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expected future cash flows as in the case of Project B. Chapter 9 P9-4. LG 2: NPV Basic PVn = PMT × (PVIFA14%‚20 yrs) NPV = PVn − Initial investment NPV = $13‚246 − $10‚000 a. PVn = $2‚000 × 6.623 NPV = $3‚246 PVn = $13‚246 Calculator solution: $3‚246.26 Accept b. PVn = $3‚000 × 6.623 PVn = $19‚869 c. P9-5. Capital Budgeting Techniques: Certainty and Risk PVn = $5‚000 × 6.623 PVn = $33‚115 NPV = $19‚869 − $25‚000 NPV =
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LONDON SCHOOL OF COMMERCE. | ASSIGNMENT ON ACCOUNTING AND DECISION MAKING TECHNIQUES | | QUINCY | 4/20/2011 | (A) Why is investment appraisal process so important? Answer Capital investment involves the commitment of large amounts of company resources‚ which will necessitate careful evaluation to be undertaken before a decision is reached. The investment appraisal process helps managers make the right investment decisions as regards what projects to invest in to maximize shareholders
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general level of interest rates. This is called project’s required rate of return or cost of capital in capital budgeting. Then‚ find the PV of expected cash flows and the asset’s rate of return. If the PV of the inflows is greater than PV of outflows (NPV is positive)‚ or if the calculated rate of return (IRR) is higher than the project cost of capital‚ accept the project. Question b What is the difference between independent and mutually exclusive projects? Between normal and non-normal projects
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capital budgeting project. a. True b. False ANSWER: False 3. Assuming that their NPVs based on the firm’s cost of capital are equal‚ the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. a. True b. False ANSWER: False 4. A basic rule in capital budgeting is that if a project’s NPV exceeds its IRR‚ then the project should be accepted. a. True b. False ANSWER:
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changes of sign C – 1 NPV: is the sum of all cash inflows and outflows of a project C - 2 - The rationale behind the NPV method is that it is equal to PV of inflows minus the cost which is the net gain in wealth. If the projects are mutually exclusive we will choose the project with the highest NPV and here in our case we will choose project S since it has a greater NPV compared to project S (19.98>18.79). If the projects are independent we will choose both. C - 3 The NPV will change if the WACC
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Assignment Chapter 11 Assignment Chapter 11 True/False Indicate whether the statement is true or false. ____ 1. Assuming that their NPVs based on the firm’s cost of capital are equal‚ the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. ____ 2. The internal rate of return is that discount rate that equates the present value of the cash outflows (or costs) with
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INTRODUCTION TO CAPITAL BUDGETING Overview 159 7.1 The NPV Rule for Judging Investments and Projects 159 7.2 The IRR Rule for Judging Investments 161 7.3 NPV or IRR‚ Which to Use? 162 7.4 The “Yes–No” Criterion: When Do IRR and NPV Give the Same Answer? 163 7.5 Do NPV and IRR Produce the Same Project Rankings? 164 7.6 Capital Budgeting Principle: Ignore Sunk Costs and Consider Only Marginal Cash Flows 168 7.7 Capital Budgeting Principle: Don’t Forget the Effects of Taxes—Sally and Dave’s
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