ANALYSIS AND LOCKHEED TRI STAR INVESTMENT ANALYSIS QUESTION 1: A) Payback, NPV, IRR: (35,000) 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 1 (35,000) 2 3 4 5 6 7 8 5,000 5,000 5,000 5,000 5,000 5,000 5,000 9 Machine Cost Duration (years) Cash Flows Cost of capital Payback (years) 35000 15 5000 12% total cost annual cash flow 10 11 12 13 14 15 7 NPV IRR present value of cash inflows - present value of cash outflows 3.07%
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money in account but still does not take cash flow * IRR not as good NPV-discount rate that drives NPV to 0 * Changed weighted avg. of capital it does not change IRR * Critisim of IRR same internal rate of return assums cash flows will be reinvested-unrealistic * Can get more than 1 IRR-if more than one change * NPV sum of cash flows if positive-give it a green light go with it /Negative you should not do it * Is IRR-greater is what you want * NNR adjusted cash flow were
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Executive summary In this report, we will discuss about the capital budgeting of CapitaLand, one of the largest real estate companies in Asia. Business activities and financial background of CapitaLand will be mentioned in this report, also with the evaluation of two potential mutually exclusive capital investments as well as the objective of these investments for this company. This report also contents the analysis of four main different capital budgeting techniques used in the investments for
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lead to a decrease in the NPVs of all the investments being considered. 2. One advantage of the payback period method of evaluating fixed asset investment possibilities is that it provides a rough measure of a project's liquidity and risk. 3. The internal rate of return is that discount rate which equates the present value of the cash outflows (or costs) with the present value of the cash inflows. 4. Under certain conditions, a particular project may have more than one IRR. One condition under which
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1. Net Present Value: Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account. NPV is calculated using the following formula: NPV= -C0 + C11+r+ C21+r2+…+ Ct(1+r)t - C0 = initial investment C = cash flow r = discount rate t = time If the NPV of a prospective project is positive, the
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8.3 Payback period a. Payback period is a kind of “break-even” measure. To actually compute the payback period, it is assumed that any cash flow occurring during a given period is realized continuously throughout the period, and not at a single point in time. The payback is then the point in time for the series of cash flows when the initial cash outlays are fully recovered. The payback criterion decision rule is to accept projects that payback before this cutoff, and reject projects that take
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payback period Net Present Value Net present value (NPV) used to evaluate and analyze the reliability of an investment and its profitability for capital budgeting purposes (Accounting for Management, 2011). The difference between the present value of cash inflows and the present value of cash outflows refers to net present value (Investopedia, 2011). NPV = Total PV of future cash flows – initial cash flow (CF0) n CFi NPV = Σ --------------------- - CFo i= 1
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CAPITAL BUDGETING (Technique) Process Capital Budgeting 1. Biaya proyek harus ditentukan. 1. Manajemen harus memperkirakan aliran kas yg diharapkan dari proyek, termasuk nilai akhir aktiva. 2. Risiko dari aliran kas proyek harus diestimasi (memakai distribusi probabilitas aliran kas). 3. Dengan mengetahui risiko dari proyek, manajemen harus menentukan biaya modal (cost of capital) yg tepat untuk mendiskon aliran kas proyek. 4. Dengan menggunakan nilai waktu
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Shapiro: Chapter 2: Capital-Budgeting Principles and Techniques QUESTIONS 1. a. What is the relationship between accounting income and economic profit? Answer: Accounting income is calculated by taking revenues and subtracting all cash and non-cash expenses (such as depreciation). Accounting income also often recognizes losses for tax purposes as well, even though the economic loss may have taken place at another time. Economic profit is the sum of the present values of all the cash
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within organizations is defined and reported. Key terms related to capital budgeting are also defined. Risk analysis based on the Net Present Value (NPV) is performed on the salvage values before and after sales tax values 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
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