...was assigned to find the relationship between Free Cash Flow (from now on refer as FCF), Economic Value Added (from now on refer as EVA) and Market Value Added (from now on refer as MVA), specifically whether a company with high FCF also have high EVA and MVA. Explanation using empirical evidence is also needed to support my reasoning and arguments. Therefore, in order to complete this assignment, I have used a few types of references which are financial management reference books, journals, articles from Fortune magazine and set-up an interview with Mr. Amiruddin b. Abdul Shukor which is the Chief Financial Officer (CFO) for Nationwide Express Courier Services Berhad. Throughout his career, he had worked in Permodalan Nasional Berhad (PNB), Permodalan Terengganu Berhad (PTB), Securities Comission Malaysia (SC) and Malaysian Industrial Development Finance Berhad (MIDF). An interview session was set with him on 2/12/2011 at his office in the headquarters of Nationwide Express Courier Services Berhad in Shah Alam, Selangor. 2.0 FINDINGS 2.1 Free Cash Flow In definition, FCF is the cash flow actually available for distribution for investors after the company has made all the investment in fixed assets and working capital necessary to sustain ongoing operations (Brigham & Ehrhardt, 2005). Basically, the formula for FCF is as follows: In the investors’ perspective, positive value of FCF is more favorable than negative value because it means that the company has high expectancy...
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...FNCE papern the balance sheet. The company lacks sufficient amount of cash to fund the investment so it needed to engage in debt financing to meet its goal. In the 2007 financial statements, HPL had Net Working Capital of $102.5 Million so it has the capital means to pay off creditors, whichallows HPL to use debt financing. Historically, HPL has been a very conservative company and refrained from using debt as a means to finance projects. The current Debt/Equity for HPL’s industry is 49.1%. If HPL used all debt to finance this investment, its Debt/Equity would be 18.7% (See Appendix B); if it used cash in conjunction with debt, the Debt/Equity would be 16.8%. In both cases, the Debt/Equity is closest to 17.6% which points to a WACC of 9.45%. If the firm undertook a more substantial amount of debt, the cost of the debt would not continue to be 7.75% so it is beneficial for HPL to keep its debt low. n the balance sheet. The company lacks sufficient amount of cash to fund the investment so it needed to engage in debt financing to meet its goal. In the 2007 financial statements, HPL had Net Working Capital of $102.5 Million so it has the capital means to pay off creditors, whichallows HPL to use debt financing. Historically, HPL has been a very conservative company and refrained from using debt as a means to finance projects. The current Debt/Equity for HPL’s industry is 49.1%. If HPL used all debt to finance this investment, its Debt/Equity would be 18.7% (See Appendix...
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...A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h bn A a fcf g g g hgh,h gjhhhjhhj hjg jjb b h h h...
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...realizing location recommendation services for large-scale location-based social networks, by exploiting the social and geographical characteristics of users and locations/places. Through our analysis on a dataset collected from Foursquare, a popular location-based social networking system, we observe that there exists strong social and geospatial ties among users and their favorite locations/places in the system. Accordingly, we develop a friend-based collaborative filtering (FCF) approach for location recommendation based on collaborative ratings of places made by social friends. Moreover, we propose a variant of FCF technique, namely Geo-Measured FCF (GM-FCF), based on heuristics derived from observed geospatial characteristics in the Foursquare dataset. Finally, the evaluation results show that the proposed family of FCF techniques holds comparable recommendation effectiveness against the state-of-the-art recommendation algorithms, while incurring significantly lower computational overhead. Meanwhile, the GM-FCF provides additional flexibility in tradeoff between recommendation effectiveness and computational overhead. networking services allow users to connect with friends, explore places (e.g., restaurants, stores, cinema theaters, etc), share their locations, and upload photos, video, and blogs. As city and neighborhood exploration is one of the main themes in many location-based social networking services, it is highly desirable for such services to provide location recommendations...
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...Chapter 6: CPU Scheduling • • • Basic Concepts Scheduling Criteria Scheduling Algorithms Operating System Concepts 6.1 Basic Concepts • Maximum CPU utilization obtained with multiprogramming. • CPU–I/O Burst Cycle – Process execution consists of a cycle of CPU execution and I/O wait. – Example: Alternating Sequence of CPU And I/O Bursts – In an I/O – bound program would have many very short CPU bursts. – In a CPU – bound program would have a few very long CPU bursts. Operating System Concepts 6.2 1 CPU Scheduler • The CPU scheduler (short-term scheduler) selects from among the processes in memory that are ready to execute, and allocates the CPU to one of them. • A ready queue may be implemented as a FIFO queue, priority queue, a tree, or an unordered linked list. • CPU scheduling decisions may take place when a process: 1. Switches from running to waiting state (ex., I/O request). 2. Switches from running to ready state (ex., Interrupts occur). 3. Switches from waiting to ready state (ex., Completion of I/O). 4. Terminates. • Scheduling under 1 and 4 is nonpreemptive; otherwise is called preemptive. • Under nonpreemptive scheduling, once the CPU has been allocated to a process, the process keeps the CPU until it releases the CPU either by terminating or by switching to the waiting state. Operating System Concepts 6.3 Dispatcher • Dispatcher module gives control of the CPU to the process selected by the short-term scheduler;...
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...Cash Flow: Free, But Not Always Easy Read more: http://www.investopedia.com/articles/fundamental/03/091703.asp#ixzz1ufzEnLN5 March 08 2010 | Filed Under » Fundamental Analysis, Stock Analysis, Stocks The best things in life are free, and the same holds true for cash flow. Smart investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to pay debt, pay dividends, buy back stock and facilitate the growth of business - all important undertakings from an investor's perspective. However, while free cash flow is a great gauge of corporate health, it does have its limits and is not immune to accounting trickery. (For background reading, see Analyzing Cash Flow The Easy Way.) What Is Free Cash Flow? By establishing how much cash a company has after paying its bills for ongoing activities and growth, FCF is a measure that aims to cut through the arbitrariness and "guesstimations" involved in reported earnings. Regardless of whether a cash outlay is counted as an expense in the calculation of income or turned into an asset on the balance sheet, free cash flow tracks the money. To calculate FCF, make a beeline for the company's cash flow statement and balance sheet. There you will find the item cash flow from operations (also referred to as "operating cash"). From this number subtract estimated capital expenditure required for current operations: Cash Flow From Operations (Operating Cash) - Capital Expenditure --------------------------- ...
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...Cash Flow and Cost of Capital Learning Objec-ves 2 ¨ Cash flow to invested capital ¤ $4,000.00 $3,500.00 $3,000.00 $2,500.00 Free cash flow NOA NIBCL NOA ¨ Rate cost of capital ¤ NIBCL C IC OA Weighted average cost of capital Includes all costs of capital Fair value of invested capital $2,000.00 $1,500.00 $1,000.00 $500.00 $-‐ IC ¨ Economic profit ¤ ¨ Value of the firm ¤ roic > k FCFi V=∑ i i (1 + k) N ¨ Financial decision criterion over mul-ple periods 3 State-‐ ment of Cash Flows Statement of Cash Flows 4 ¨ ¨ ¨ This financial statement details the change in the balance sheet cash and equivalents accounts, CE, during an accoun-ng period. CEi = CEi-‐1 + CFOi + CFIi + CFFi = CEi-‐1 + ∆CE ∆CE = CFO + CFI + CFF ¤ ¤ ¤ CFO is the cash flow from opera-ng ac-vi-es CFI is the cash flow from inves-ng ac-vi-es CFF is cash flow from financing ac-vi-es Statement of Cash Flows 5 Statement of Cash Flows Balance Sheet ...
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...Group 1, HW6 9-3 a) After Tax Cost of debt = (1-tax rate)*borrowing rate=5.6% Then we can use the CAPM model to calculate the Levered cost of equity, which is 15% b) First we need to calculate the FCF (EBIT-Tax payments+Depreciation-investments), which is 15400, then use the firm FCF-interes=Equity FCF. Then we need to find the Debt Valuation from the balance sheet which is 25000, then use the Equity FCF to calculate the Equity Valuation, which is Equity FCF/ Levered Cost of equity, which is 93333 Now we can add this two together(Debt Valuation+Equity Valuation) to get the Enterprise Value which is 118333 c) Based on the given data, we can use the WACC formula (Wd*(1-T)*Rd+We*Re) to calculate this ratio. Which is 13.01% d) We have already calculated the FCF(15400) e) Enterprise Value= FCF/WACC=118333, which is consistent with we calculated before. f) Value per share= Enterprise Value/ Number of Shares=46.67 9-5 a) Unleveled cost of equity= BL/ (1+(1-T)*D/E)= 13.89% b) We have already calculated the FCF(15400) c) Interest Tax saving= Interest Expense*Tax Rate, which is 600 each year. d) The same as we did in 9-3 First we need to calculate the Equity Value, which is FCF/ Unleveled Cost of Equity=110833 Then we need to calculate the value of tax savings, which is 600/Borrowing Rate(8%)=7500 The Enterprise Value= Equity Valve+ Value of Interest Tax savings=118333, which is consistent with the result we calculated before. e) Value per Share=...
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...believe that the operations of Sampa Video are similar to the operations of its competitors. Therefore, we estimated the company’s Beta using the asset Beta for Kramer.com and Cityretrieve.com. Thus, To determine the value of the project we’ve used incremental Cash flow approach. (Table 2). We started by computing the Incremental Free Cash Flows (FCF) from 2001 until 2006. Then using the discount rate of 15,8%, we calculated the present value of the future Free Cash Flows until 2006. After that, based on the assumption that after 2006 CF would grow at 5%, we estimated the terminal value of the company. Finally, based on these assumptions, the NPV of the project would be: 1228,485 2. What is the Internal Rate of Return (IRR) of this project? The internal rate of return is the rate that would make the net present value of the firm’s project equal to zero. In other words, the IRR is the rate that would make the decision of investing or not in this project indifferent for the company. In order to calculate the IRR we started by computing the Free Cash Flows (FCF) for every single year. Once we got all the FCF, we calculated the IRR discounting them by the rate that would make the Net Present Value...
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...1. (1) Option #3 was for Stryker Instruments to manufacture its own PCBs in its own facility near company headquarters. (2)Benefits for option 3: ● Better control the quality, delivery and cost; ● Maintain the business stability; ● Supply PCBs to other Stryker businesses; ● Be able to implement cost shift and avoid tax; (3) Risks for option 3: ● Carry the inventory; ● Incur large capital outlay and sunk cost; ● Increase headcount, payroll and other expenditures (materials, infrastructure, R&D, maintenance, PP&E and depreciation) of Stryker; ●Bear the risk that the equipment may be outdated; (4) Compared with option #1: ●Benefit: no capital outlay; to some extent can protect future against disruptions with lower cost; flexibility; ●Risk: instability in quality, cost, delivery and responsiveness; Compared with option #2: ●Benefit: can improve quality of the supplies by increasing business with the supplier; ●Risk: the possibility of bankruptcy and weak financial performance of supplier; the sole supplier can strongly affect Stryker’s performance; coordination problem. 2. (1) Followings are the key assumptions of our write up: ● Stryker Instruments incurred all capital expenditures including (construction and improvements, furnishings and non-manufacturing equipment, communication equipment and IT infrastructure and capital equipment) in year 2003, before the implementation...
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...Correct Answer 5676 margin of error +/- 2 Question 2 Swamp & Sand Industries has the following data. The discount rate is 12%. Terminal value is 3 times FCF. Cash and debt are constant. Calculate its Enterprise Value. | 20X1 | 20X2 | 20X3 | Free Cash Flow | 1933 | 1933 | 1933 | Cash | 147 | 147 | 147 | Debt | 435 | 435 | 435 | You Answered Correct Answer 8762.3 margin of error +/- 3 Enterprise Value is the discounted value of FCF and Terminal Value. At 12% 3 yrs, the PVA1 = 2.4 At 12% 3 yrs, the DF = .71 So FCF *2.4 + TV*.71 = Enterprise Value. To find the PVA1 (the present value of a $1 annuity): 1=P/YR 3=N 12=I/YR 1=PMT 0=FV PV=2.4 To find the discount factor: 1=P/YR 3=N 12=I/YR 0=PMT 1=FV PV=.71 Question 3 An analyst is valuing Palm and Sun Industries for a possible acquisition. The buyer wants cash flows evaluated for 20 years a terminal value $50 M. Ignore taxes. Annual cash flow from continuing operations $ 1115 M. Annual cash flow from product line expansion $239 M. Annual cash flow from tax savings $ 40 M. Use these discount rates. Cost of Equity 15% Cost of Debt 6% Calculate the APV. You Answered Correct Answer 8938 margin of error +/- 5 Question 4 Given the following data from Swamp & Sand Industries, calculate the FCF. The tax rate is 30%. Sales | 10754 |...
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...New Heritage Doll Company Financial Assessment Executive Summary New Heritage Doll Company’s production division has two serious proposals that will be presented to the capital budget committee. The first proposal, named Match My Doll Clothing Line extension, will add year round seasonal clothing to Heritage’s product line. This proposal’s NPV was $7,326.11. The IRR was 24.10% and the MIRR was 20.68%. The Profitability Index was 3.08 and the payback period was 7.11 years. The value of the tax shield is $647,000. The second proposal, called Design Your Own Doll, is a new product line related to the heirloom line. It is one that will allow customers to customize the looks of the dolls they purchase through the New Heritage Doll Company website by utilizing a new software program. This proposal has an NPV of $8,200.45. The IRR is 17.64% and the MIRR is 16.13%. It has a Profitability Index of 2.13 and a payback period of 10.11 years. The value of the tax shield for this project is $629,000. The screening of these projects was extensive and based on this analysis we recommend the Match My Doll Clothing line extension. Although the Design Your Own Doll Line has a higher NPV, it is not the key factor as to what we should use when picking one project over the other. It is important to factor in the IRR, MIRR, Payback Period, and the PI as well. Furthermore, we included the Value of the Tax Shield into our valuation of which project to choose. The Match My Doll Clothing...
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...capital. To that extent, the DCF relies more on the fundamental expectations of the business than on public market factors or historical precedents, and it is a more theoretical approach relying on numerous assumptions. A DCF analysis yields the overall value of a business (i.e. enterprise value), including both debt and equity. Download DCF Analysis Template Key Components of a DCF * Free cash flow (FCF) – Cash generated by the assets of the business (tangible and intangible) available for distribution to all providers of capital. FCF is often referred to as unlevered free cash flow, as it represents cash flow available to all providers of capital and is not affected by the capital structure of the business. * Terminal value (TV) – Value at the end of the FCF projection period (horizon period). * Discount rate – The rate used to discount projected FCFs and terminal value to their present values. DCF Methodology The DCF method of valuation involves projecting FCF over the horizon period, calculating the terminal value at the end of that period, and discounting the projected FCFs and terminal value using the discount rate to arrive at the NPV of the total expected cash flows of the business or asset. Exhibit A – Advantages and Disadvantages Advantages | | Disadvantages | | * Theoretically, the DCF is arguably the most sound method of valuation. * The DCF method is...
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... | Introduction The difference in the job process scheduling will be measured based on table 1 that was given. We are comparing the differences between First Come, First Served (FCFS), Shortest Operating Time (SOT) and Earliest Due Date (EDD) to find which sequencing rule may work the best. Highlights Lateness: The findings (SOT) had the best average of lateness (-3.8), but would still have 3 jobs come up short. On the other hand (EDD) had a slightly lower average at (-2.1), but had no jobs arrive late. With that being said both of these alternative had better averages than the (FCFS) method that positrol workholding is currently using. Jobs: To have the best efficiency and make sure the customers are happy, most jobs should be completed on time which is not the case for the methods (FCFS) and (SOT). They both would have 3 late jobs, whereas (EDD) method would have 0 late jobs, meaning they would all be completed on time. Flow Time: The last key finding would be to look at the average flow time for each of the three methods to come to an overall consensus in which sequencing rule may work the best, whether it is (FCFS) or one of the two alternatives in (SOT) and (EDD). Once again in the findings the (FCFS) method was the worst with an average flow time of 14.16 followed by (EDD) at 13.98 and then (SOT) at 11.4. (EDD) is the best...
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...Valuation, Risk, and Return Five years ago, Laissez-Faire Recliners issued $10,000,000 of corporate bonds with a 30-year maturity. The bonds have a coupon rate of 10.125%, pay interest semiannually, and have a par value of $1,000 per bond. The bonds are currently trading at a price of $879.625 per bond. A 25-year Treasury bond with a 6.825% coupon rate (paid semi-annual) and $1,000 par is currently selling for $975.42. In order to find the yield spread between the corporate bonds and the Treasury bonds we must first find the yields of both bonds. The yield is the amount of return an investor can expect to receive from a bond. The yield for the corporate bond (found using the yield formula in excel) is 11.57%. The yield for the Treasury bond is 7.04%. The yield spread is found by adding these two percentages and finding the average (dividing by 2), in this case the yield spread is 9.30%. If you are considering an investment in Laissez-Faire’s bonds (that will be held to maturity) and require an 11% rate of return you would not invest in these bonds. You would invest solely in the corporate bonds, however that is not an option, so you would bypass this option since the bond yield falls below this 11% required rate of return. If you are considering a purchase of Laissez-Faire’s preferred stock, with a current market price of $42, a par value of $50, and a dividend amounting to 10% of par, you must calculate the actual value of the stock. In this case it falls at $40, which...
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