Guillermo ’s Furniture Store Proforma Analysis FIN 571 July 23‚ 2012 Abstract To sustain further improvements to a company’s bottom line and profitability‚ Guillermo’s Furniture is completing a pro-forma cash flow analysis that includes net present value (NPV)‚ internal rate return (IRR)‚ and weighted average cost control (WACC) analysis’. The plan is to incorporate a merger of a high tech furniture business‚ a broker distributer business‚ or the status quo manufacturing. The issues
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assess key factors in the areas of cash flow‚ equity‚ operations‚ profitability‚ and risk. The analysis will conclude with a recommendation on whether ExxonMobil is a secure long-term investment. Cash Flow The 2010 Annual Report notes “delivery of superior cash flow” as a financial highlight‚ driven by operating cash flow management and a disciplined approach to employed capital. Net cash flows generated from operating activities was the largest contributor of cash at $48.4B. This reflects a $20
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IRR= 11.49% The NPV of this project is negative and the IRR is lower then the Cost of Capital (12%) Rainbow products shouldn’t go for it. (B) Based on the perpetuity formula we can compute the PV in this case : Computation of the PV : PV= Cash flow per year/ cost of capital) =4‚500 / 0.12 = $37‚500 Computation of the NPV : NPV= -Initial investment + PV = -35‚000 + 37‚500 NPV=$2‚500 Rainbow products could buy this machine with the service contract if they intent to use it in the long-run.
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Risk Analysis on Investment Decisions Investment techniques used in corporate finance when making decisions on projects usually focuses on cash flows of the firm (Ross‚ Westerfield‚ and Jaffe‚ 2004). Because of drastic changes in the business environment over the last decade‚ managers are requesting better‚ more accurate information‚ and improved techniques to meet company needs for making major decisions with data consisting of clear goals‚ a planned design‚ high ethics‚ revealed limitations‚
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Ratio and Operating Cash Flow to Current Liabilities Ratio. Both ratios use current liabilities in the denominator‚ although the current ratio using current liabilities at the end of a period and the cash flow ratio uses average current liabilities for the period. Thus‚ the explanation most likely relates to the numerator. The firm is probably growing and increasing inventories and accounts receivable‚ which increase the current ratio. However‚ the firm is not collecting cash from customers but having
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to a salvage value of $120‚000 in 10 years. The extra oven would increase annual revenues by $120‚000 and annual operating expenses by $90‚000. Barbarian’s marginal tax rate is 25%. a. What would be the initial‚ operating‚ and terminal cash flows generated by the new oven? b. What is the payback period for the additional oven? c. Barbarian Pizza’s RRR is 12%. What is the NPV of the additional oven? d. What is the IRR of the additional oven? 2. Chin Jen Lie is considering
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Income $5‚560 Depreciation $4‚268 Change in Working Capital $1‚397 Cash from Operating Activities $11‚225 Investing Activities: Increased in Fixed Assets ($6‚068) Cash from Investing Activities ($6‚068) Financing Activities: Decrease in Debt ($7‚655) Dividends Paid ($2‚900) New Stock Sold $4‚800 Cash from Financing Activities ($5‚755) Net Cash Flow ($598) Beginning Cash Flow $3‚245 Net Cash Flow ($598) Ending Cash $2‚647 Problem 12 a. Linden % Industry % Sales 6‚000 100
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AFIN858 Financial Management and Policy Week 1 S1 2014 “INTRODUCTION TO CORPORATE FINANCE” “Where is This Slide From”? • Most of the slides we use in this unit are provided by the Publisher of the required text “…as down-loaded from Connect…” • Sometimes we modify slides by adding or removing content. Other times we use slides from other sources. Occasionally we ‘make’ slides. • Note that lecture slides are not numbered sequentially. • Slides are identified in the lower RHS corner
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Investment in Assets and required returns · Cash flow determination · Non-DCF and DCF techniques Case: Investment analysis and Lockheed Tri Star Assignment Questions 1. Compute the payback‚ net present value (NPV)‚ and internal rate of return (IRR) for this machine. Should Rainbow purchase it? Assume that all cash flows (except the initial purchase) occur at the end of the year‚ and do not consider taxes. 2. For a $500 per year additional expenditure‚ Rainbow can get a "Good As New" service
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Decision Trees for Decision Making The management of a company that I shall call Stygian Chemical Industries‚ Ltd.‚ must decide whether to build a small plant or a large one to manufacture a new product with an expected market life of ten years. The decision hinges on what size the market for the product will be. Possibly demand will be high during the initial two years but‚ if many initial users find the product unsatisfactory‚ will fall to a low level thereafter. Or high initial demand might
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