valuation method for the project is forecasting the future free cash flows generated from the project and calculating its net present value (NPV). This project has a positive NPV of $936,147, and an internal rate of return (IRR) at 11.44% which is larger than the company’s weighted average cost of capital (WACC) at 9.85%. Consequently, the investment is expected to be able to maximize shareholders’ wealth by generating positive future cash flows. The WACC of the company is estimated based on its cost
Words: 658 - Pages: 3
per share, (2) its payback period, (3) net present value of free cash flow and (4) internal rate of return. The firm uses such a complicated scheme to evaluate capital-expenditure proposals because: (1) Impact on earnings per share evaluates how the project is going to affect shareholders’ wealth of the company. (2) Payback period evaluates how long the project is going to take to reach break-even point. (3) NPV of free cash flow evaluates the dollar contribution of the project to shareholders
Words: 799 - Pages: 4
such as pensions after retirement. In any case it represents out flow of cash from one account to in flow of cash to another account. In this way all annuities involve movements of cash or funds. Therefore all annuities are cash flows that can be suitably represented in cash flow statements.An annuity will be represented as inflow of cash in the cash flow statement for the recipient of the annuity and out flow of cash in the cash flow statement of the person or firm paying out the annuity. Q.no
Words: 1980 - Pages: 8
ROHANI MD. RUS PREPARE BY: WONG LI WEN 220957 NOOR NAILAH BINTI KAMARUDDIN 222016 KHAIRUNNISA BT AHMAD DAMANHURI 222411 Table of Contents What is the basic nature of the problem in this case? 1 Base-case Units Assumptions 3 Cash Flow- License 5 Working Capital - Own 6 Working Capital - License 6 Incremental NPV and IRR Sensitivity to Total Units Sold 7 What do the result of the foregoing DCF analysis suggest? 8 Are there qualitative issues that we should address, but
Words: 3055 - Pages: 13
Corporate Finance: Theory & Practice 25557 Assignment 1) What are the appropriate costs of capital for the GPS transmitter and surveillance aircraft projects? The cost of capital is used to discount the expected cash flow of a proposed project to its present value to make an evaluation of whether to proceed or drop out the project. Normally, a company cost of capital or WACC is used as the discount rate for projects. However, as WACC represents the average rate of return demanded by investors in
Words: 1484 - Pages: 6
It provides a detailed description of the discounted-cash-flow (DCF) approach and reviews other methods of valuation, such as market multiples of peer firms, book value, liquidation value, replacement cost, market value, and comparable transaction multiples. Discounted-Cash-Flow Method Overview tC The DCF approach in an M&A setting attempts to determine the enterprise value or value of the company, by computing the present value of cash flows over the life of the company.1 Because a corporation
Words: 9453 - Pages: 38
project free cash flow versus accounting profits, incremental cash flows, net present value, and internal rate of return. Caledonia Products is deciding whether to undertake a new investment project. The firm must determine the cash flows for the life of the project, calculate the net present value and the internal rate of return, and decide whether the project is a sound investment. Caledonia must focus on free cash flow somewhat than accounting earnings because the free cash flow profits the
Words: 1255 - Pages: 6
results from change in the financial integrity of the investment. b. Default risk 10. _________ measure the systematic risk of a security that cannot be avoided through diversification. a. Beta Part Two: 1. What is Annuity kind of cash flow? Ans : A series of payments of an equal amount at fixed, equal intervals for a specified number of periods. Annuity is fixed sum of money paid every year in at any other fixed interval shorter than a year. This annuity may be by way of return
Words: 3176 - Pages: 13
uncertainty in the financial markets. In July 2000, Reed Hastings, CEO of NetFlix, needed to decide whether the compnay should proceed with the IPO or withdraw it. Investment banks predicted that the IPO of NetFlix would succeed if it showed positive cash flows within a twelve-month horizon, but the executives at NetFlix were unsure whether they could achieve that goal. Long-Run Objectives & Performance To Date NetFlix’s long-run objectives are to
Words: 2108 - Pages: 9
Synopsis: Dow is acquiring Rohm and Haas from Ingersoll-Rand at an agreed price per share of $78. However, a deal with Kuwait’s Petrochemical Industries Company, which was supposed to generate $7 billion of cash to be used to finance the acquisition, had recently fell-through. The hiccup has led to Rohm taking legal action to force Dow to complete the acquisition as required by the merger agreement. The standalone value of Rohm’s share price is currently at $46.77 while the synergies could almost
Words: 2181 - Pages: 9
