the relevant cash flows for General Foods to use in evaluating the Super project? In particular‚ how should management deal with issues such as: a) Test-market expenses? b) Overhead expenses? c) Erosion of Jell-O contribution margin? d) Allocation of charges for the use of excess agglomerator capacity? Typically‚ when using Net Present Value (NPV) method to determine whether a project adds value to the organization‚ free cash flow is taken into consideration. Depreciation expense‚ a non-cash item
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Industry Analysis * Industry is large and stable * Heavily regulated creates opportunities for supplies * Aggressive investment in new and current plants (new business for suppliers) * Slim margins manufacturers will likely put pressure on hygiene supplier prices. Industry KSP is to keep costs low Competitive Analysis: * Eco Lab + JDH major competitors * have large financial backing * hygiene suppliers compete on product formulations‚ price and service
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“cost of capital” is defined as a the rate of return on investment projects nesscery to have unchanged market price of a firm’s share. It may be the rate at which funds can be borrowed on new equity capital or‚ it may be the rate at which futher cash flows are discounted to measure its present values. The cost of Capital of a firm is the weighted average of the cost of the various sources of finance that have been used by it. The cost of capital to a firm is the minimum rate of return that it must
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liabilities‚ long-term debt‚ common stock‚ and retained earnings. C) long-term debt‚ paid-in capital in excess of par‚ common stock‚ and retained earnings. D) long-term debt‚ common stock‚ preferred stock‚ and retained earnings. 2. The relevant portion of an asset’s risk attributable to market factors that affect all firms is called A) unsystematic risk. B) diversifiable risk. C) systematic risk. D) None of the above. 3. Why is maximizing shareholder wealth a better goal than
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return on these assets. Ques 1. What is the amount of annual cash flows that Polaris must earn from these projects to have a 10% internal rate of return? Solution 1:Initial Investment=$2.12 million=$212000 Time Period (n) =10 years At IRR‚=10%‚Net Present Value of Investment=0 i.e. Present Value of 10 years Cash Flow-Initial Investment=0 Initial Investment =Present Value of 10 year Cash Flow We will get Present value of 10 year equal cash flow(CF) using annuity formula Initial Investment=CF*(1-(1+IRR)^(-n))/IRR
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Analysis (Exhibit 1 to 3)‚ Risk Analysis (Exhibit 4) and Financial Analysis (Exhibit 5 to 10). Preliminary Analysis starts with gathering key facts and data such as purchase prices‚ current and future income‚ depreciation‚ estimated sales price and cash flows‚ loan and its rate and amortization‚ taxes and etc. The 1st year setups (Exhibit 2) for each property were developed and major comparable statistics (Exhibit 3) were calculated. Such analyses serve as a foundation for identifying directions and
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means. ANSWER: If the net baht-denominated cash flows are converted into dollars today‚ Blades is not subject to any future depreciation of the baht that would result in less dollar cash flows. 2. If the net baht received from the Thailand operation are invested in Thailand‚ how will U.S. operations be affected? (Assume that Blades is currently paying 10 percent on dollars borrowed‚ and needs more financing for its firm.) ANSWER: If the cash flows generated in Thailand are all used to support
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The Super Project Introduction General Foods (GF) expects Super‚ a new powdered dessert‚ to capture 10% share of the total dessert market (2% coming from the erosion of Jell-O sales). The company’s Financial Analyst has issued a memo comparing three alternative techniques for project evaluations‚ illustrating the problems and limitations inherent in using ROFE (return on funds employed) and payback as evaluation methods. The disparate ROFE results obtained with these methods are due to differences
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Convert all future and/or uncertain cash flows into a “present value”! The CAPM (we will cover its basics in this course) gives us a method to quantify our aversion to waiting (impatience) and our risk-aversion‚ by incorporating both into the discount rate. Notation and Terminology Time Line: displays sizes and timing of cash flows “Now” (“today”) is always time “zero”‚ i.e.‚ the end of period “zero”. So the first “future” cash flow accrues at time ..... We use the letter
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under construction. The importance of these two financings for two types of development; i.e. Sell Then Build (STB) and Build Then Sell (BTS) can be illustrated as below:- STB (e) Money 0 Time End Finance (b) BTS (i) POSITIVE CASH FLOW (+) (a) (g) (d) (f) (ii) (c) (-) Bridging Finance Brief explanation on the graph for the two types of
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