that the required rate of return is 15% and the initial cost of the machine is $3,000,000. 1. What is the project’s IRR? IRR % IRR= 22.38% 2. What is the project’s NPV? NPV NPV= $3,450,866.74 3. Should the company accept this project and why (or why not)? I believe the company should look into this. The IRR is greater than the Required Rate of Return and the overall NPV is a gain. There does not appear to be a loss in this asset. 4. Explain how depreciation will affect the present
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cash flows of the project but also the value of the project when considering interest rates, time value of money, inflation, and all other factors that may lead to the change of the value of a single dollar. (AccountingInformationManagement.Org. 2015) NPV is calculated using the following
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CORPORATE FINANCE T H IRD E DIT ION JONATHAN BERK STANFORD UNIVERSITY PETER D E MARZO STANFORD UNIVERSITY Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo To Rebecca, Natasha, and Hannah, for the love and for being there —J. B. To Kaui, Pono, Koa, and Kai, for all the love and laughter —P. D. Editor in Chief:
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SRJIS/BIMONTHLY/ALBANUS MUNYAO (718-729) THE RELATIONSHIP BETWEEN CAPITAL BUDGETING TECHNIQUES AND FINANCIAL PERFORMANCE OF COMPANIES LISTED AT THE NAIROBI STOCK EXCHANGE, KENYA Albanus Munyao, South Eastern Kenya University P. O. Box 170-90200, Kitui-Kenya Fredrick Mukoma Kalui, Egerton University, P. O. Box 536, Njoro-Kenya Jacqueline Ngeta, South Eastern Kenya University P. O. Box 170-90200, Kitui-Kenya Abstract The general objective of the study was to find out the relationship between
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Introduction Capital budgeting is the decision-making process that establishes the goals and criteria for planning and investing a firm’s resources in fixed assets or long-term projects. Capital budgeting normally includes the evaluation of projects like land, building, facilities, equipment, vehicle fleets, and so on. Capital budgeting is important for the following reasons: 1. The size of the investments. As discussed throughout this book, the key function of a financial officer
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introduced through the capital market o If the interest rate is lower than both projects, then the combination of both projects is best accepted and if no combination is possible (i.e. an upgrade and another project) then both projects are accepted. o NPV calculates the projects REQUIRED RATE OF RETURN to convert future cash flows to their equivalent values today. Capital rationing describes the situation where firms have limited resources and independent projects Therefore, IF A CAPITAL MARKET
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Exercício 1 • You are offered an asset costing $600 that has cash fl ows of $100 at the end of each of the next 10 years. • a. If the appropriate discount rate for the asset is 8 percent, should you purchase it? • b. What is the IRR of the asset? Exercício 2 • You just took a $10,000, five-year loan. • Payments at the end of each year are flat (equal in every year) at an interest rate of 15 percent. Calculate the appropriate loan table, showing the breakdown in each year between principal
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The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects. For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods. Multiple IRRs can exist, but not multiple MIRRs. This is one reason some people favor the MIRR over the regular IRR. If a
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criteria's that I might use to rank the projects such as the projects' payback period, its IRR, its average income, or its NPV. Also there different quantitative ranking methods that I would use, for example, Net Present Value, Payback Rule, Internal Rate of Return, and Average Accounting Return. Out of the four methods, NPV is going to result better because it is usually the best method for capital budgeting. IRR will only works when the projects have a series of cash flow, but we have a few project
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dan 1993. Hasilnya tercermin dalam peningkatan kecanggihan tehnik evaluasi profitabilitas modal investment yang digunakan. Terdapat peningkatan perusahaan yang menggunakan metode Discounted Cash Flow (DCF), seperti Net Present Value (NPV) dan Internal Rate of Return (IRR). Diterapkan masing-masing maupun kombinasi dengan Metode non DCF lainnya seperti Payback. Masalah Peneliti ingin mengetahui seberapa jauh praktek penerapan capital budgeting dalam perusahaan, sehingga dapat meningkatkan wawasan
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