is the subject of Chapter 13. The knowledge is necessary to understand and motivate the capital budgeting models. It relates NPV - IRR procedures to the required rate of return idea, something with which students are already familiar. We explicitly tie NPV and IRR together by emphasizing that the IRR comes from the NPV equation as the interest rate that sets NPV=0. This helps to develop an overall understanding of both procedures. TEACHING OBJECTIVES After this chapter students
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SEMINAR MANAJEMEN KEUANGAN Primus Automation Division Disusun Oleh : KP A Roy Sutanto 3122103 Andrena Novita Santoso 3122137 FAKULTAS BISNIS DAN EKONOMIKA UNIVERSITAS SURABAYA SEMESTER GENAP 2014 / 2015 Statement of Authorship “Saya/kami yang bertandatangan dibawah ini menyatakan bahwa makalah/tugas terlampir adalah murni hasil pekerjaan saya/kami sendiri. Tidak ada pekerjaan orang lain yang saya/kami gunakan tanpa menyebutkan sumbernya. Materi ini tidak/belum pernah disajikan/digunakan
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Computation of NPV: NPV= C0 + PV [PV= C0 + Σi=1t Ct/(1+r)t] =C0 +C[1/r – 1/r(1+r)t] = -35,000+ 5000[1/.12 - 1/.12(1+.12)15] = -35,000 + 5000[1/.12 – 1/.657] = -35,000 + (5000 * 6.81) = -945.68 i.e. $ -945.68 Computation of IRR: 0= -35,000 + Σ t i=1 5000/(1+IRR)t = 11.49% Rainbow Products should not purchase the machine because it is not profitable whether you utilize the NPV method or the IRR method. By NPV method, project should be rejected because it has a negative NPV of $945.68.
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(d) Determine the NPV for each of these projects? Should they be accepted? Explain why? ……………..…………...….…………………….…2 (e) Describe the logic behind the NPV approach?......……..……………………...3 (f) What would happen to the NPV if: (1) The cost of capital increased? (2) The cost of capital decreased? …………………………………………....3 (g) Determine the IRR for each project. Should they be accepted? ...…………...4 (h) How does a change in the cost of capital affect the project’s IRR? ………….6 (i) Why is the NPV method often regarded
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frequently used methods are the net present value (NPV) and internal rate of return (IRR). These are both tools that analyze the present value of the cost of a project as well as the present value of that projects future cash flows. An essential part of these methods is that they both account for discounted cash flow (DCF), meaning that they both reflect the time value of money. When analyzing independent projects with conventional cash flows, both the NPV and IRR will provide projections along the same lines
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Spring 2011, test 3, question 9, version 4, modified by adding IRR & NPV 1. The following table presents information on a potential project with conventional cash flows currently being evaluated by SDA. Which of the statements are true? Expected cash flows (number of years from today) | Cost of capital | 0 | 1 | 2 | 3 | 4 | | -60,000 | 28,000 | 18,000 | 35,000 | 9,000 | 14.0% | Statement 1: SDA would accept the project based on the project’s payback period and the payback rule if
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Net Present Value (NPV) and Internal Rate of Return (IRR) results, describes the relationship between the two and explains the reasons behind the acquisition recommendation (e) in the Microsoft Excel spreadsheet. Analyzing the Results The case study presents two corporations (A and B) with different revenue values and expenses as well as variable depreciation expenses, tax rates and discount rates. Members of the team computed both corporations’ cash flow, NPV and IRR value using a Microsoft
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4 main techniques available ranging from simple to moderately complex MULTIPLE APPRAISAL METHODS: Non‐discounted cash flow techniques: 1. Payback period (PBP) 2. Accounting rate of return (ARR/ROCE/ROI) Discounted cash flow techniques(DCF): 3. Net Present Value (NPV) 4. Internal Rate of Return (IRR) 6 1 MBA7001 Accounting for Decision-Makers Week 6 Lecture – Capital Investment Appraisal Objectives (1)
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Handouts for Corporate Finance 1 Capital Budgeting Introduction A logical prerequisite to the analysis of investment opportunities is the creation of investment opportunities. Unlike the field of investments, where the analyst more or less takes the investment opportunity set as a given, the field of capital budgeting relies on the work of people in the areas of industrial engineering, research and development, and management information systems (among others) for the creation of investment
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| A. | Payback | 7 years | | | | | | | | | | Costs | $35,000 | | NPV | ($947.67) | | | | | | | | | | Lasts | 15 years | | IRR | 11.50% | | | | | | | | | | Capital Cost | 12% | | Rainbow Products should not accept this project because the IRR is below the 12% Capital Cost rate and NPV is negative | | | | | | | | | | | | | | | | | Add'tl Expense | $500 | B. | NPV | $2,500 | | | | | | | | | | Perpetuity | $4,500 | | Rainbow Products
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