project. It is calculated as payback period = cost of project / annual cash inflows. 3. Describe the Internal Rate of Return (IRR) method for determining a capital budgeting project's desirability. What is the acceptance benchmark when using IRR? The internal rate of return (IRR) is a rate of return used in capital budgeting to measure and compare the profitability of investments. It is also called the discounted cash flow rate of return (DCFROR) or simply the rate of return (ROR). In the context
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uneven cash flow stream: Year Cash Flow 0 $2,000 1 2,000 2 0 3 1,500 4 2,500 5 4,000 a. What is the present (Year 0) value of the cash flow stream if the opportunity cost rate is 10 percent? b. What is the future (Year 5) value of the cash flow stream id the cash flows are invested in an account that pays 10 percent annually? c. What cash flow today (Year 0), in lieu of the $2,000 cash flow, would be needed to accumulate $20,000 at the end of Year 5? (Assume that the cash flows for Years
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Target Market 5 Competition 5 2 Methods of Distribution 5 Advertising 7 Pricing 7 Product Design 7 Timing of Market Entry Location 8 Industry Trends 8 7 FINANCIAL DOCUMENTS Summary of Financial Needs 8 Sources and Uses of Funds Statement Cash Flow Statement (Budget) 9 Three-year Income Projection 10 Break-even Analysis Graph 15 Actual Performance Statements 16 Balance Sheet 16 Summary 21 SUPPORTING DOCUMENTS Personal Resumes 22 Personal Financial Statement 22 Credit Reports 22 Copies of Leases
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HANDOUT Example The capital investment committee of a state owned corporation is currently considering two projects. The estimated income from operations and net cash flows expected from each operation are as follows: | PROJECT A | PROJECT B | Year | Income from operations$ | Net Cash Flow$ | Income fromOperations$ | Net Cash Flow$ | 1 | 12,000 | 44,000 | 26,000 | 58,000 | 2 | 18,000 | 50,000 | 20,000 | 52,000 | 3 | 20,000 | 52,000 | 16,000 | 48,000 | 4 | 16,000 | 48,000 | 16,000 |
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Case Study 11-1 Medieval Adventures Questions 1. Prepare monthly income statements, balance sheets, and cash budgets based on sales increases of 500 units per month and 30-day advanced production for January through September. See attached income statements, balance sheets and cash budgets. When will the company need extra funds? How much will be needed? When can a short-term loan to cover the need be repaid? The company needs extra funds in April to keep from going into a negative bank balance
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creates more value. First, we need to figure out the initial cash outflow of each project. Table 1 and table 2 illustrate the initial cash outflows of MMDCL and DYOD separately. As the upfront R&D and marketing are tax deductible and the tax rate is 40%, the initial expenditures are $3.02 million and $5.331 millions. Next step is to calculate the unlevered cash flows of each year. As the result 9.2 (p.310) illustrates, unlevered cash flow = profit before interest and taxes + depreciation and amortization
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-Lease vs. buy decision? Capital equipment is necessary for Granny’s Greenhouse to operate, the actual greenhouse. The greenhouse will have its own heating and cooling features to maintain a steady growing temperature. The cooling system works by running water down the glass panes that have fans blowing air on the water to evaporate, thus cooling the interior. (Priest, 2013) Additional equipment will include computers, pumps, tanks, etc. The total cost is $150 thousand financed at 6% which
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its first year of operation: 1. Performed counseling services for $18,000 cash. 2. On February 1, 2013, paid $12,000 cash to rent office space for the coming year. 3. Adjusted the account to reflect the amount of rent used during the year. Required Based this information alone a. Record the events under an accounting equation. b. Prepare an income statement, balance sheet, and state of cash flows for the 2013 accounting period. c. Ignoring all other future events, what is
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earnings per share); a 12.6% growth from the previous year. Operating cash flow; while lower than 2000 and 2001 has shown a modest increase since 2002 and continues to be positive due to the company’s variable cost structure. This is in-part is due to more efficient working capital investments and “other” adjustments to income, awarding the company a 10% increase in net cash flow year-over-year. Linear Technology has increased its cash holdings to excess of $1.5 billion through employing cost savings
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Executive summary | | | 3 | 2.0 | Sales Forecast | | | 3 | | | 2.1 | Sales Forecast | 3 | | | 2.2 | Methods and Assumptions | 3 | 3.0 | Capital Expenditure Budget | | | 4 | 4.0 | Investment Analysis | | | 4 | | | 4.1 | Cash flows | 4 | | | 4.2 | NPV Analysis | 5 | | | 4.3 | Rate of Return Calculations | 5 | | | 4.4 | Payback Period Calculations | 5 | 5.0 | Pro Forma Financial Statements | | | 6 | | | 5.1 | Pro Forma Income Statement | 6 | * 1.0
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