School of Management Blekinge Institute of Technology THE IMPORTANCE OF THE PAYBACK METHOD IN CAPITAL BUDGETING DECISION. By Alaba Femi, AWOMEWE & Oludele Olawale, OGUNDELE Supervisor: Anders Hederstierna Thesis for the Master’s degree in Business Administration Fall/Spring 2008 THE IMPORTANCE OF THE PAYBACK METHOD IN CAPITAL BUDGETING DECISION. By Alaba Femi, AWOMEWE & Oludele Olawale, OGUNDELE A thesis submitted in partial fulfillment of the requirements for the degree
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independent projects are being considered in a non-capital rationing situation. When two or more mutually exclusive projects are being evaluated and the projects are of different size, the coefficient of variation is a better measure. 4. The basic NPV model considers increasing risk over time by using a discount rate that is a compound rather than a simple rate. 5. The portfolio effect of a new project on the risk of a firm should be considered when the project is large and its returns are
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above giving a final decision on them. From these four different “hurdles” will be used to evaluate if the capital expenditure proposal for Merseyside Works should go ahead. These being: * Impact on earnings per share * Payback Period * NPV of the project (Discounted Cash Flow method) * Internal Rate of Return Background Victoria Chemicals is a major competitor in the world wide chemical industry and a leader in producing polypropylene. Victoria Chemicals was under pressure
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KEY CONCEPTS OF FINANCE A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM Understanding Money Money is a standardized unit of exchange. The physical form of money is currency. Different countries have different currencies. Interest is the amount earned or paid on money which is lent. Compound interest is the ‘interest earned on interest’. Compound Interest (C.I)= [P*(1+r/100)^t – P] P=Principal amount r=Rate of interest t=Time period in years Interest may be compounded annually, semi-annually
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provided on Blackboard to do this analysis. Use this Excel file to do your work. It will also help you in setting up the base case analysis. Remember that you are to do the analysis on a per jet basis, as I mentioned in class. Hint: The base case NPV for the project is $260,980. (1) Describe the four phases of the Project Evaluation discussed in the case. Explain why all four phases are important to fully understanding the project analysis. Phase 1: engineering assessment, establish the
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extra care will be taken to look at all the measurements to reduce the risk inherent in new product introductions in the aircraft business. Question 1 a. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7? Please use the capital asset pricing model to estimate the cost of equity. At the date of the case, the 74-year equity market risk premium (EMRP) as estimated to be (see below). Which beta and risk-free rate did you use? Why?
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An Assignment On Finance for Managers Introduction: Unique horizon Ltd. is a recently formed in 2002 situated at London, a limited company which is facing increasing growth. They began their business as a family business so their level of financial accountability is low. But now the management needs a financial accountant in order to ensure the accountability and proper management of the firm. However, before that the management needs to know specifically the roles and responsibility of proper
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methods, but the other two methods are used as well. These methods can be used by themselves but are more accurate and effective if used in combination for the management team to have more information to base a decision on. The Net Present Value (NPV) is the present value of future cash inflows minus the cost of the investment. This method combines two concepts of value. “First, it determines how much cash will flow in as a result of the investment, and compares that against the cash that will
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Accounting Format – Cells above each other hundreds/tens/ones place Custom Value: positive value; negative values; zero; text [green]?”$”;[red](?);”ZERO!”;”Why text?” - Use @ for numbers typed AKA repeat back Ctrl + : to get current time Ctrl + ; to get current date Custom format d = 7 or 17 dd = 07 or 17 ddd = sex dddd = sex-feira File > Options > Advanced > Edit Custom Lists > Import To program an autofill list feature where other
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Ratio Analysis: Financial Rations- relationships determined from firms financial information and used for comparison purposes. Short Term Solvency or Liquidity Rations: ✓ These ratios provide information about the firm’s liquidity. The primary concern us the firm’s ability to pay its bills over a short run without undue stress. The focus on current assets and liabilities. Generally, but not always, the book value and the market value of a firm’s current assets/liabilities are similar as
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