∑(Expected CFt)/(1+r)t – Investment * Perpetuity – pays a fixed amount C per period forever * P(C,r) = C/r requires cash flow to begin NEXT period. If begin now, then PV = C + C/r * Annuity – fixed stream of cash flows that has a final period t * A(C,r,t) = C/r [1-1/(1+r)t] * Growing Perpetuity – G(C,r,g) = C/(r-g) C is initial cash flow, r is discount rate, g is growth rate * P/E = 1/(r-g) * High P-E multiple means the firm has good growth opportunities (high
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investment in Mercury. Analysis: In order for Liedtke to get a broader picture on the acquisition of Mercury, he needs to compare and analyze a list of financial data from 2006 to 2011; projected balance sheet accounts, operating results and free cash flows, and cost of capital calculations. This data will enable him to identify the strengths and weaknesses of this acquisition. First lets look a summary of the operations of both AGI and Mercury Athletics’ actual operations based on the last year
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should be capitalized? Designing Coding Testing X None of the above 3. (TCO C) Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini Corp.’s $5 par value common stock and $75,000 cash. When the patent was initially issued to Maxi Co., Mini Corp.’s stock was selling at $7.50 per share. When Mini Corp. acquired the patent, its stock was selling for $9 a share. Mini Corp. should record the patent at what amount?
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Gator Electronics Inc. an electronics manufacturer that sells electronic products to third-party retail centers has identified its reporting units as geographical regions in which it operates: United States, South America, Canada, Asia, Europe, Africa, and the Middle East. Gator Electronics elected not to perform the qualitative assessment for determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and proceeded with Step 1 of the quantitative
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and prospective investors are less likely to be involved with the firm. Ensuring a project has a positive impact on the earnings per share over its entire economic life is therefore critical. Payback is the number of years necessary for free cash flow of a project to amortize the initial project outlay. The specified time period for which payback is to be completed by is six years. The payback rule is reasonably simple and has a number of pitfalls in practise because it ignores the project’s cost
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Advanced Fuel Corporation Kaize Lei Yu Wu Minh Nguyen 1. The type of financing largely depends on 3 factors: - Financial status of AFC - Amount of upside gain in a diversified portfolio - Record of past banking involvement in corporate venturing Advanced fuels Corporation is still at the early stage of formation, thus it is unlikely to break even in the future years and its probability of bankruptcy is high. Due to the difficulty in classifying loans to friends into either current or non-current
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along with the different sale ranges. Keywords: NPV, NPV Profile, NPV, IRR, multiple IRRs, ranking conflict of NPV vs. IRR, payback period, profitability index, discount rate, cost of capital concept, cash flow analysis, cash flow timeline, conventional cash flow stream, non-conventional cash flow stream, sunk cost, opportunity cost, independent projects, mutually exclusive projects Overview of the Capital Budgeting Process Every business requires some source of funds to maintain operation and
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future profits. So while the balance sheet method is simple, it is not accurate; there are better ways of accomplishing the task of valuation. Cash vs. Profits Another way to value the firm is to consider the future flow of cash. Since cash today is worth more than the same amount of cash tomorrow, a valuation model based on cash flow can discount the value of cash received in future years, thus providing a more accurate picture of the true impact of
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NATHAN 3 Overview The valuation process Determining a final valuation recommendation is a process of triangulation using insight from each of the relevant valuation methodologies (1) Discounted Cash Flow VALUATI O N O V E R VI EW Analyzes the present value of a company's free cash flow. (3) Comparable Acquisition Transactions Utilizes data from M&A transactions involving similar companies. (2) Publicly Traded Comparable Companies Utilizes market trading multiples from
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Discounted Cash Flow Analysis for Continuing Operations A. Assumptions The following assumptions have been made when calculating the discounted cash flows for A) Continuing with current operations B) Building a new stadium C) Hiring a new striker D) Building a new stadium as well as hiring a new striker. Working capital would increase each year with revenues at 9% each year until the final year in which it would continue at 4% with revenues. Maintenance Capex and Capex depreciation is assumed
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