organization. The techniques are divided into two types: one, Traditional (non-discounting) that includes pay back method, accounting rate of return (ARR). Two, discounting cash flow that includes net present value (NPV), internal rate of return (IRR) Profitability Index (PI). Before an investment appraisal is conducted, there are a number of points to keep in mind. Whilst the tool presented will give an evaluation of the worth of a project, one should consider that the answer is only a guide.
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08 Fall 08 Fall Target Case Kevin R Davis EMBA 7200 Tuesday 1. Gopher Place: Accept The Gopher Place project should be accepted because of its low risk based in the sensitivity assessment. It has a high NPV of $16,800, strong IRR of 12.3% and the sales decline for nearby stores is low at $4,722. Target would own this property which is in line with its long term strategic goals. The area is projected to see the largest growth rate of the other 5 projects at 27%. This market is also projected
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10.1 http://webs.wichita.edu/longhofer/Fin340/Homeworks/Fin340_08S_HW9S.pdf 10.4 Current Share Value (P0) = $30 Expected annual dividend per share (D1) = $3 Constant Growth rate (g) = 5% a year (a) What is the Company’s Cost of Common Equity if all of its equity comes from retained earnings? Cost of Common Equity (R) = [D1 / P0] + g Cost of Common Equity (R) = [$3 / $30] + 0.05 Cost of Common Equity (R) = 0.15 (or) 15% Cost of Common Equity (R) = 15% (b) If the Company issued
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$7,326.11. The IRR was 24.10% and the MIRR was 20.68%. The Profitability Index was 3.08 and the payback period was 7.11 years. The value of the tax shield is $647,000. The second proposal, called Design Your Own Doll, is a new product line related to the heirloom line. It is one that will allow customers to customize the looks of the dolls they purchase through the New Heritage Doll Company website by utilizing a new software program. This proposal has an NPV of $8,200.45. The IRR is 17.64% and
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Guillermo's could use, and what the optimal Weighted Average Cost of Capital (WACC) of each option will be presented along with techniques for reducing risks. There are many forms of capital budgeting models that can be used. Payback made simple, NPV, IRR, and Payback discounted. The payback period: The simple payback period can be defined as “the expected number of years required to recover the original investment.” (Emery 2007) For example, if Guillermo’s invest $300 million in one of its projects
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budgeting are also defined. Risk analysis based on the Net Present Value (NPV) is performed on the salvage values before and after sales tax values along with the different sale ranges. Keywords: NPV, NPV Profile, NPV, IRR, multiple IRRs, ranking conflict of NPV vs. IRR, payback period, profitability index, discount rate, cost of capital concept, cash flow analysis, cash flow timeline, conventional cash flow stream, non-conventional cash flow stream, sunk cost, opportunity cost, independent
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HBS Project: Blackstone and the Sale of Citigroup’s Loan Portfolio Blackstone and The Sale of Citigroup’s Loan Portfolio In the second half of 2007, the banking industry and financial market showed signs of considerable stress by raising the default rate of mortgage and the decline in the value of residential mortgage-backed securities. This had led to a re-pricing of many debt instruments. By the end of 2007, Citigroup declared that the fair value of its U.S. sub-prime related direct exposure
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$4,500 $18,000 $0 2.00 2.00 2 b. IRR = 100%, the discount rate at which NPV = 0. Est time: 01–05 16. NPV $10,000 $7,500 $8,500 $2,029.09 1.12 2 1.12 3 Since the NPV is positive, the project should be accepted. Alternatively, you can compute the IRR by solving for r, using trial and error, in the following equation: $10,000 $7,500 $8,500 0 IRR = 20.61% (1 r )2 (1 r )3 Since the IRR of the project is greater than the required rate
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internal rate of return (IRR). Included is the excel spreadsheet with our calculations and graph to decipher easily which company will make the best purchase. The NPV and IRR are two critical numbers that are helpful in determining the purchase. “The NPV tells us how much value is created if the project is accepted, and if the NPV is positive, value is created; if the NPV is negative, the project destroys value” (Keown, Martin, & Petty, PhD., 2014, p. 337). “If the IRR of a project is equal to
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requires that all projects have a payback period of 2 years or less and a discounted payback period of 2.5 years or less. a) Calculate the exact Payback Period 1 year b) Calculate the discounted Payback Period. 3.92 year c) Calculate the IRR of the machine. 13.1% d) Calculate the NPV. $151,539 e) Calculate the Profitability Index associated with the project. 1.03 f) Should ABC Inc purchase the machine based on the results from a), b), c) d) and e)? Accept the Project since
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