Guillermo Case Study: Capital Budget Evaluation Techniques ACC/543 Guillermo Navalles faces many financial challenges in order to succeed in the present business environment. In order to ensure the continued profitability and competitive edge of Guillermo Furniture, he needs to make an investment decision on where to direct capital. He is deliberating between directing capital to purchase advanced equipment, or to adapt a brokerage business model. In order to assess the financial viability
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Capital Budget Case- Delta Star Incorporated Description of the Company: Delta Star Incorporated is a family owned and operated convalescent care facility and the family owns other convalescent care facilities and non-related businesses. The owners want to expand their business and are considering constructing a new twenty six bed convalescent unit in a new area where the demand and reimbursement returns are similar to their present business. The second investment option being considered by Delta
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Question 1: EPS serves as an indicator of a company’s profitability; more specifically EPS is the portion of a company’s profit allocated to each outstanding share. For a potential project to meet the UWA Plastic guidelines the contribution to net income has to be positive, which is an obtainable and reasonable criterion, seeing as optimal financial decision should maximize shareholder wealth/value of equity. The ITF projects’ average annual addition to EPS is $0.018 meaning it meets the company’s
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Rate of Return (IRR). The IRR is a rate of return used in capital budgeting to measure and compare the profitability of investments. In Excel is calculated by =IRR ( ) by the sum of initial investment and the benefits obtained. For Option A the IRR is 18.96%, and Option B is 25.53%. The last step is to determine the Net Present worth (NPV) is defined as the difference between the present value of cash inflows and the present value of cash outflows. Given the rate is 12%, the NPV= (rate, sum of benefits)-initial
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New Heritage Doll Company – Capital Budgeting Harvard Business School – Case 4214 The New Heritage Doll Company’s production division has been has given the responsibility of evaluating two proposals for new projects. The first project expands on a current “Match My Doll Clothing Line”, and the second involves creating a fully customized doll under the “Design Your Own Doll” proposal. Proposal Backgrounds Match My Doll Clothing Line Expansion (MMDCLE) The Match My Doll Expansion includes
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value, payback period, and the traditional IRR for each tanning option under the various scenarios. What do the decision rules indicate? The NPV is higher for the dome unit, but the tanning unit has a lower payback and a higher IRR. Decision rule would suggest that higher NPV, lower payback and higher IRR should be accepted. Under mutually exclusive situation as we have here where we need to select between dome or tanning bed, we should select based on NPV. 4. Can Patsy evaluate this business project
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6 7 8 2.many quantitative techniques such as NPV,IRR , payback period ,Discounted payback period and Average accounting return are there to rank the projects. NPV is better as it shows the present values of cash invested and considers both time factor as well as discount rates.IRR gives only percentage ,it ignores the magnitude of cash flow. IRR only works if there is a series of cash flow,that shows a result in an initial outlay followed by
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budgeting and state the payback period decision rule. 6. What is the discounted payback period of the project in Question 4, assuming your cost of capital is 7%? 7. Define the Net present Value (NPV) method in capital budgeting and state the NPV decision rule. In economic terms, what does the NPV amount represent? 8. Your firm is looking at a new investment opportunity, Project Z, with net cash flows as follows: ---- Net Cash Flows ---- Project Z Initial Cost
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to take the business over the next several months and years. This paper will present several alternatives Guillermo Furniture may use and will include a sensitivity analysis. Financial and valuation topics covered will include net present value (NPV) and weighted average cost of capital (WACC) and will discuss how these alternatives, or techniques, are used to reduce risk. Guillermo Navallez is the successful owner of Guillermo Furniture for many years now. Located in Sonora, Mexico, Guillermo's
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reflected in the firm’s FCFs. If a firm identifies and then invests in positive NPV projects, this will increase the value of its operations as determined by the FCF model. The central issue is analyzing individual projects, and here the key factor is assessing the cash flows. See the BOC spreadsheet model. We go through the model to show how capital budgeting projects are analyzed. In this case, the initial NPV, IRR, and MIRR, all evaluated at the 12% average cost of capital and using the expected
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