Topic 9 The Purpose of this Topic * Remember, one of the two primary goals of the financial manager is to maximize owner wealth, and to do this the manager must identify and make long-term investments which produce a return equal to greater than the investments required rate of return. Thus, the purpose of this topic is to provide you with the knowledge and skills needed to identify, analyze and make capital or long-term investments (also known as Capital Budgeting) which are equal to or greater
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CHAPTER 10 CONCH REPUBLIC ELECTRONICS, PART 1 This is an in-depth capital budgeting problem. The initial cash outlay at Time 0 is simply the cost of the new equipment, $21,500,000. The sales each year are a combination of the sales of the new PDA, the lost sales each year, and the lost revenue. In this case, the lost sales are 15,000 units of the old PDA each year for two years at a price of $290 each. The company will also be forced to reduce the price of the old PDA on the units they will
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Brief Introduction Indian River Citrus Company is a leading producer of fresh, frozen, and made-from-concentrate citrus drinks. Currently, the company has three projects which are introduction of a new product known as lite orange juice; two mutually exclusive projects, Project S and Project L; and a fleet of delivery trucks with an engineering life of three years. All projects have its advantages and drawbacks. Hence, capital budgeting for each project is made for decision-making purpose. Benefits
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whether to add others opinions into the project and whether to promote the project for funding. There are four investment criteria for engineering-efficiency investment: positive net income, maximum payback period is 6 years, positive NPV of free cash flow and IRR should be greater than 10%. Transport Division To meet the project’s goal of increasing throughput, the Transport Division has to increase its allocation of tank cars to Merseyside Works. Greystock disagreed to put the cost of the tank
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For MAR and the NYSE index, determine the monthly average return on the share price, the related variance and standard deviation. What does the standard deviation measure? Compare the standard deviation and monthly average returns of the NYSE index and MAR. What do your calculations suggest about the relationship between risk and return? (12 marks) Definition of 'Standard Deviation' A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher
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to lead Pan-Europa. Answer #2: After reviewing Exhibit #3 and the data that is represented, NPV was calculated using a 10.5% estimated weighted average cost of capital for Pan-Europa’s proposed projects. Taking this data into consideration, the ‘Strategic Acquisition’ project scored the highest ranking above all other projects due to its 47.97 WACC rating, NPV at minimum rate of return of 41.43 and an IRR of 28.7%. Project No. 11 7 8 9 4 10 2 3 5 1 6 Project Name Strategic Acquisition Eastward Expansion
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asset investment decisions. You are required to develop a model to calculate the ambulatory surgery center’s net cash flows on the basis of estimated utilization, estimated charges, and other relevant data and then take this data and calculate the NPV, IRR, MIRR, and Payback. You must also perform sensitivity and scenario analyses. You should also provide an analysis of risk and the impact of inflation on project profitability. Your completed assignment will be evaluated on the basis of addressing
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members. Each CPR is presented to the committee with a “dashboard” that summarizes the critical inputs used to compute the net present value (NPV) and internal rate of return (IRR). The dashboards also contain data about the type of investment (new store or remodel), market size, location, customer-demographic information, as well as the sensitivity of NPV and IRR to changes in various inputs. In addition to the factors influencing the economics of the CPRs, Scovanner cites such issues as brand awareness
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capital budgeting is that if a project's NPV exceeds its IRR, then the project should be accepted. [A] True [B] False [4] The internal rate of return is that discount rate that equates the present value of the cash outflows (or costs) with the present value of the cash inflows. [A] True [B] False [5] Other things held constant, an increase in the cost of capital will result in a decrease in a project's IRR. [A] True [B] False [6] A project’s IRR is
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of project cash flows. The cash flows are discounted at the rate appropriate to the risk level of the cash flow. NPV=Initial Cost+CF11+k+CF2(1+k)2+…+CFn(1+k)n The NPV is the total value of the project, net of all costs. If NPV > 0, we accept the project, otherwise, if NPV < 0, we should not accept the project. The Internal Rate of Return IRR is the discount rate when the NPV is equal to Zero. It can be viewed as the financial break-even point where all cash inflows at present
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