1. a) Payback Period= Investment/Cash Flow per Year = 35,000/5000 = 7 year Computation of NPV: NPV= C0 + PV [PV= C0 + Σi=1t Ct/(1+r)t] =C0 +C[1/r – 1/r(1+r)t] = -35,000+ 5000[1/.12 - 1/.12(1+.12)15] = -35,000 + 5000[1/.12 – 1/.657] = -35,000 + (5000 * 6.81) = -945.68 i.e. $ -945.68 Computation of IRR: 0= -35,000 + Σ t i=1 5000/(1+IRR)t = 11.49% Rainbow Products should not purchase the machine because it is not profitable whether you utilize the NPV method or the
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statements and taxes, conduct a basic lease analysis from the perspective of the lessee, discuss the factors that create value in lease transactions, explain in general terms how businesses are valued, and conduct a business valuation using discounted cash flow and market multiple approaches. Introduction This chapter covers two unrelated topics: lease financing and business valuation. Leasing is a substitute for debt financing and hence expands the range of financing alternatives available to businesses
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Capital Budgeting Case Learning Team B is considering acquiring another corporation. There are two different companies being considered, with the acquisition cost for each at $250,000. The information given for each business is as follows: Corporation A carries revenue of $100,000 for the first year and increases each year after that by 10%. The expenses for this corporation are $20,000 for the first year which will increase by 15% each year after that. The depreciation expense for Corporation
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assignment that involves both the calculation of the cash flows associated with a new investment and the evaluation of several mutually exclusive projects. The company is currently in the 34% tax bracket with a 15% discount rate because this project is considered a fad project it will only last five years then it will be terminated. This paper will focus on free cash flows, projection of cash flows during years 1-5, projects initial outlay, cash flow diagram, net present value, internal rate of return
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Table of Contents Company Background 2 Financial Ratios 5 Bond Valuation 5 Wal-Mart vs. Target Competitor Analysis 7 Stock Valuation 7 Capital Budgeting 10 Cost of Capital and Capital Structure 12 Conclusion 13 References 13 Appendix 13 Company Background Wal-Mart Stores, Inc. (NYSE: WMT) Sam Walton founded Wal-Mart Stores, Inc. in 1962. Wal-Mart is a family-owned business that operates through many generations of Sam Walton’s heirs, who own over 50% of Wal-Mart through
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EXERCISE WEEK 11 ACCT 5906 KEY STEPS FOR WRITING A BUSINESS PLAN AND PREPARING A BUDGET AIM: This introductory exercise aims to introduce participants to the key steps in business planning and budgeting and to work in groups to exchange ideas about the topics. REQUIREMENTS: 1. Group Your group will be required to present your budget in class. You will be given around 5 minutes to present. You are encouraged to use handouts and/or posters and/or role plays. You do not need to use power
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Donald Burrell FIN/370 March 25, 2013 Jim Triplett Caledonia Products Free Cash Flows or Accounting Profits Earned Caledonia is currently in the position of investigating a new product as well as the evaluation of several mutually exclusive projects. The project free cash flows are more important to focus on than mere accounting profits in this analysis process. The reason for this is that the cash flows show more of what is involved in relation to costs as well as profits. There will
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Management ...................................................................................................................................... 7 Budgeting ............................................................................................................................................................................... 7 Discussion Point #1: Budgeting............................................................................................................................................ 7
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heart of business management. Businesses report information in the form of financial statements on a periodic basis. The most common financial statements are the Consolidated Statement of Earnings (income statement), balance sheet and statement of cash flows. Each of these financial statements are important to a business for a different reason. Today, we will look at these financial statements, examine the importance and show what business decisions can be made from each statement. In addition
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analyzed and interpreted by this well-known technique of evaluation and selection of investment projects. This technique has certain limitations in analyzing certain special kinds of projects like mutually exclusive projects, an unconventional set of cash flows, different project lives etc. ADVANTAGES OF INTERNAL RATE OF RETURN: The various advantages of internal rate of return method of evaluating investment projects are as follows: Time Value of Money: The first and the most important thing is that
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