...Case Study: The Investment Detective When reviewing the eight investment opportunities, I do believe that it is possible to rank the projects based on their cash flows. I also believe that ranking them just based on their cash flow would not be an accurate ranking. When you only consider the cash flow of an investment you only get a glimpse of the excess cash flow the company can profit from over the initial investment. Just looking at the cash flow does not take into consideration the account the time of money and is not a great way to make a decision about investments because different companies have different cash on hand needs. When looking at cash flow, I would rank the investments, from best to worst as 3, 5, 8, 4, 1, 7, 6, and 2. There are several criteria that could be used to analyze the investments to see which would be the best choice. You could use the payback method, net present value (NPV), internal rate of return (IRR), and the profitability index (PI). The payback method determines the length of time it will take to recover the initial investment also known as the payback period (Gabriel). A certain amount of time is chosen for the project to payback the initial investment. An easy way to think of the payback method is the length of time it will take to break even (Gabriel). The NPV is the difference between the cost of an investment and the market value (Gabriel). NPV measures the value that is added by choosing to do an investment. NPV is considered...
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...CASE STUDY The Investment Detective The essence of capital budgeting and resource allocation is a search for good investments in which to place the firm’s capital. The process can be simple when viewed in purely mechanical terms, but a number of subtle issues can obscure the best investment choices. The capital budgeting analyst is necessarily, therefore, a detective who must winnow good evidence from bad. Much of the challenges is knowing what quantitative analysis to generate in the first place. Supposed you are a new capital budgeting analyst for a company considering investments in the eight projects listed in Exhibit 1. The chief financial officer of your company has asked you to rank the projects and recommend the “four best” that the company should accept. Part I For the first part of this assignment only quantitative considerations are relevant. No other project characteristics are deciding factors in the selection, except that management has determined that projects 7 and 8 are mutually exclusive. All projects require the same initial investment, $2,000,000. Moreover, all are believed to be of the same risk class. The weighted average cost of capital for the first part is 10%. To simulate your analysis, consider the following questions: 1. Can you rank the projects simply by inspecting the cash flows? We cannot rank the projects by simply inspecting the cash flows. We must bring all cash flows at the same point in time (present) before...
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...Bruner: Case Studies in Finance: Managing for Corporate Value Creation, 4/e IV. Capital Budgeting and Resource Allocation 17. The Investment Detective © The McGraw−Hill Companies, 2003 CASE 17 The Investment Detective The essence of capital budgeting and resource allocation is a search for good investments in which to place the firm’s capital. The process can be simple when viewed in purely mechanical terms, but a number of subtle issues can obscure the best investment choices. The capital-budgeting analyst is necessarily, therefore, a detective who must winnow good evidence from bad. Much of the challenge is knowing what quantitative analysis to generate in the first place. Suppose you are a new capital-budgeting analyst for a company considering investments in the eight projects listed in Exhibit 1. The chief financial officer of your company has asked you to rank the projects and recommend the “four best” that the company should accept. In this assignment, only the quantitative considerations are relevant. No other project characteristics are deciding factors in the selection, except that management has determined that projects 7 and 8 are mutually exclusive. All the projects require the same initial investment, $2 million. Moreover, all are believed to be of the same risk class. The weighted-average cost of capital of the firm has never been estimated. In the past, analysts have simply assumed that 10 percent was an appropriate discount rate (although certain...
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...Peninah Machaga The Investment Detective Financial Administration FINC 5713-180 DR Roy Patin Fall 2013 10/22/2013. The Investment detective. The case is basically discussing the importance of Capital Budgeting and resource allocation. Capital budgeting is the whole process of analyzing projects and deciding which ones to accept and thus include in the capital budget. It is important for a company to evaluate proposed projects accurately because there are delicate issues that can obscure the best investment issues. Analyzing project proposals require skills, effort and time therefore, analyst should be in a position to know what quantitative analysis he is to generate. Required To Rank the eight projects and recommend the four best that company should accept. Assumptions * All the projects require the same initial investment of $2million with an assumption that, they have same risk class. * Weighted average cost of capital has never been estimated. * Discount rate is 10% . However most companies use NPV and IRR The first step in project analysis is to estimate the cash flow. * It is possible to rank the project by simply inspecting the cash flow. For example by the use of excess cash flow over the initial investment, we can be able to rank the projects according to how much each project has generated within a specific period. The higher the excess value, the best rank it is given. By the use of the illustration below, we can rank the project as follows Excess...
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...The Investment Detective 1. Can you rank the project simply by inspecting the cash flow? 1) Project Ranking based on simple inspection of cash flows: | | | | Rank | Project No | Net Cash Flow($) | 1 | 3 | 8000 | 2 | 5 | 2200 | 3 | 8 | 2150 | 4 | 4 | 1561 | 5 | 1 | 1310 | 6 | 7 | 560 | 7 | 6 | 200 | 8 | 2 | 165 | As per net cash flow priority has been indicated above. But cash flow does not consider time value of money. So it is not good measure for rank different investment. 2. What criterion might you use to rank the projects? Which quantitative ranking methods are better? Why? Different quantitative methods are * Net Present Value * Internal rate of return * Payback period * Discounted payback period * Profitability Index NPV: IRR: 1) Project Ranking based on IRR: | | | | | Rank | Project No | IRR | 1 | 7 | 15% | 2 | 4 | 12.33% | 3 | 8 | 11.41% | 4 | 3 | 11.33% | 5 | 5 | 11.12% | 6 | 1 | 10.87% | 7 | 6 | 10% | 8 | 2 | 6.31% | Payback Period: 1) Project Ranking based on Pay Back Period: | | | | Rank | Project No | Pay Back Period | 1 | 6 | 0.91 | 2 | 7 | 1.88 | 3 | 2 | 2 | 4 | 8 | 6.04 | 5 | 4 | 6.05 | 6 | 1 | 6.06 | 7 | 5 | 7.14 | 8 | 3 | 15 | Discounted Payback Period: Project Ranking based on Discounted Pay Back Period: | | | | | | | | Rank | Project no. | Discounted Pay back period | | | | | 1 | 6 | 1 | | | | | 2 | 7 | 2.73...
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...The Investment Detective 1. Can you rank the projects simply by inspecting the cash flows? The company is able to perform initial ranking based on the cash flows overview, although it will not be sufficient to determine the true profitability. In this case the ranking of the projects is the following – 3, 5, 8, 4, 1, 7, 6 and 2. This ranking is supported by the excess of cash flows (CF). 2. What criteria might you use to rank the projects? Which quantitative ranking methods are better? Why? Based on the theory of the capital budgeting evaluation techniques, the investments consideration will be analyzed upon Net Present Value (NPV), Payback period and Internal Rate of Return (IRR). The concepts will support ranking from the greatest project to less attractive one. First criteria that is used for ranking is the NPV method. It is considered as the most useful method because it is based on Cash Flows of the projects throughout their entire period. Of course it incorporates the time value of money concept and represents net value of the projects or net benefit that accrues to the company. Ranking assessment will consider as acceptable investment only projects with positive NPV. The second criterion is the IRR evaluation method. It is also an alternative to NPV method. Basically IRR is a discount rate that equates the present value of project’s expected cash flows to the initial invested amount. The successful ranking criteria for the acceptable projects, is to have...
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...Questions: 1. Can you rank the projects simply by inspecting the cash flows? 2. What criteria might you use to rank the projects? Which quantitative ranking methods are better? Why? 3. What is the ranking you found by using quantitative methods? Does this ranking differ from the ranking obtained by simply inspection of the cash flows? 4. What kinds of real investment projects have cash flows similar to the cash flow below? Project Cash Flows Project Number Initial Investment (In thousands of dollars) Year 1 ($2.000,00) $330,00 $330,00 $330,00 $330,00 $330,00 $330,00 $330,00 $1.000,00 ...
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...Aplia: In addition to class preparation, for each chapter there are Aplia homework assignments, both practice and graded. Aplia is required of all students. Aplia’s homework questions and problems are tied to the textbook content and may not always agree completely with classroom discussions. Please read and comply with the Aplia instructions. For Aplia problems, use textbook formulas and 365 days in a year. Students are expected to complete all Aplia graded assignments by the specified due dates. There will be no extensions as the closing time is determined by computer. All assignments will be computer graded and scores and completion statistics will be reported by Aplia. Please see the Aplia documentation. Aplia assignments are the “homework” portion of the course grade and will be graded on the number of assignments completed and the percentage of correct answers as recognized by the computer. It is expected that students will spend approximately 2 to 3 hours, in addition to the time spent completing the Aplia assignments, preparing for each class. Additional time is required for the problems and analyses that are required. Attendance policy: There is a lot of material to be covered in this course. Therefore, it is important that every student attend every class, arriving on time. Attendance will be taken at the start of every class, and anyone not present will be marked absent. Three absences, for any reason, except University required activities, will result in a...
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...Financial Management (BUSI 640) Professor Faulkender Investment Detective Case Questions The purpose of this case is to practice estimating the value created from taking on different projects and how those values change given differences in rates of return and project duration. We will look at different ways of evaluating capital budgeting decisions and see why Net Present Value (NPV) generates better decisions than other methods. Ignore the questions provided in the case itself. the Return on Investment (Excess of cash flow over initial investment divided by the initial investment). |No. |Project |Return on Investment | |1 |3 |400.00% | |2 |5 |110.00% | |3 |8 |107.50% | |4 |4 |78.05% | |5 |1 |65.50% | |6 |7 |28.00% | |7 |6 |10.00% | |8 |2 |8.25% | the payback period. |No. |Project ...
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...Case Write-Up: The Investment Detective Case Summary The purpose of this case is to become a capital budgeting analyst and evaluate which set of free cash flows for 8 projects will result in the most effective investment for a firm’s capital. The objective given is to rank the four best that the company should accept. The case is broken down into three separate steps including the given information about estimated cash flows (inflows & outflows), determining the appropriate discount rate, and evaluating the cash flows using the IRR (Internal Rate of Return), MIRR (Modified Internal Rate of Return), NPV (Net Present Value), and other metrics. Each project is chosen solely on the basis of the quantitative analysis. Here are some factors to consider for this case: Each project has the same initial investment of $2 million; in addition, all are believed to be of the same risk class. The managers have determined that projects 7 and 8 are mutually exclusive. The issue is that the WACC has never been officially estimated and in the past the discount rate has been assumed at 10 percent (however, certain officers have asserted the discount rate to be higher). Ranking Projects Ranking projects simply through the inspection of cash flows is inadequate due to the time value of money and cost of capital of companies; the only piece of information that can be derived from looking at the cash flows is the amount of time it would take to be paid back (regular payback period). There...
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...On the haunt to find the suspect who simultaneously disappeared after committing a burglary is found by our uniformed police officer and transported to the burglary squad. He matches the description given by the last witness Mr. Mitchell around 3:00pm near the time of the offense. Being asked by Detective Johnson, Mr. Mitchell remembers everything. He remembers the physical description and the vehicle description. He’s more than the last witness, he’s a concern neighbor. Once detective Johnson arrives to the burglary squad, he recognizes the fresh cut on the suspect’s hand, and with an insured look, he knows it’s him. Expressly, Officer Butler will conduct a warrantless legal search while notifying any watchers to remind nears their home,...
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...Essay: True Detective True Detective is an extraordinary TV series, written by Nic Pizzolatto, about two Louisiana State Police detectives investigating a series of ritualistic murders. Pizzolatto has created a series beyond brilliant. The amazing structure, impeccable writing, marvelous acting, and frame story have made True Detective an immediate classic. At the end of each episode you will be on the edge of your seat craving another hour. True Detective is based on two investigators, one of them is a typical overconfident investigator, Woody Harrleson, and the other is an intellectual, nihilistic man, Matthew McConaughey. This series alternates between 1995, when detectives Martin Hart (Harrelson) and Rust Cohle (McConaughey) start working a case together, and 2012, when the two detectives work a new case that has strong similarities to the case in 1995. State internal affairs detectives are interviewing both men separately and believe that Rust may have committed the old crime, new crime or both. Rust and Marty investigate a ritualistic murder in rural Louisiana. As they attempt to uncover leads in this disturbing case, their own lives intersect in fascinating, yet explosive ways. Though the investigation itself is interesting, the interpersonal behavior of the obsessive and frequently conflicting lead characters makes this drama seem so much fresher than all other criminal television series. The structure in this series is unique. In 2012, two detectives are interviewed...
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...was interrogated at the sheriff's office by police detectives thought the late afternoon and evening of September 6 and the early morning of September 7. On September 10, Montejo was brought before a judge for what is known in Louisiana as a "72-hour hearing" a preliminary hearing required under state law. Letter that same day, two police detectives visited Montejo back at the prison and requested the accompany them on an excursion to location to the murder weapon (which Montejo had earlier indicated he had thrown into a lake). He was again read his Miranda rights and agreed to go along. While in the police car, he wrote an inculpatory letter of apology to the victim's wife. Only upon their return did Montejo finally meet his court appointed attorney, who was quite upset that the detectives had interrogated his client in his absence. III. Case History At trial, Montejo's letter of apology was introduced into evidence by State of Louisiana, over defense counsel's objective. The jury convicted Montejo of first-degree murder and he was sentence to death. The Louisiana Supreme Court affirmed his conviction, concluding the since Montejo has never formally invoked his rights to counsel officers where not prohibited from further interrogation outside the presence of counsel. IV. Legal Issues May a criminal defendant that has never personally and formally invoked his right to consul be questioned by police officer or detective after waiving his rights to consul, consistent with...
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...8 hrs. - Fire service, they will continue to make sure that all fires are kept out. They may start to clear the debris away from where plane has hit. They will have one last look for trapped casualties and those casualties may either be in the plane or buildings that the plane may have hit. Ambulance, they make sure that all casualties have been dealt with either on the scene of the incident or at hospital. They will start to collect their equipment at the incident and they will also start to reduce the numbers of personnel and vehicles at the scene of the incident. They do this so that they can be used elsewhere. They will start to take the triage down also as it may be needed at the next big incident. Police, the police will continue to patrol the area so that opportunist thieves don’t try and loot damaged houses and shops. They will continue to make sure everything is kept in order. They will prepare the roads ready for opening when the recovery phase starts. They will continue to make sure that only the right people with have access to incident site as it prevents evidence from be tampered. This allows investigation teams to be able to identify clues more easily. Police will also appoint senior investigators. Fire service, they would help to move heavy debris away from the incident Ambulance Police, with the highways agency they would start opening roads so that cars, buses and other vehicles can start to get to where they...
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...speed chase, if the driver decides not to stop. When this happens, the officer is going to begin the chase, because he does not know whether the driver has committed some terrible crime, like robbery or, if he is a dangerous drug dealer, or perhaps a wanted sex offender. You never know when a high speed pursuit will start. They can sometimes start in a local area and continue into another jurisdiction. Although these chases are dangerous, neither the driver nor the police know what might be ahead of them. Although police chases are dangerous, police who allows suspects to flee run the risk that offenders will do even greater harm to citizens, says Michael Crivello, president of the Milwaukee Police Association and a city police detective. “They’re fleeing because they may be wanted for sexual assaults, shootings, homicides,” he says. “there are pursuits that are successfully concluded all the time, but you never hear about those.” Milwaukee changed its policy on pursuits last month after four people were killed by drivers fleeing police in three separate incidents in a two-month period. Police there now must have probable cause that a violent felony has occurred instead of reasonable suspicion before initiating a chase. Who do you blame when such dangerous chases end up taking the lives of innocent bystanders. The driver, nor the police wouldn’t know, what effect this action could cost a community, when the life of someone who is well known, not only locally, but...
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