Beta measures the systematic risk of a security or a portfolio in contrast to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected returns of an asset based on its beta and expected market returns. Beta is calculated using regression analysis, it can be viewed as the trend of a security's returns to respond to movement in the market. A beta of 1 indicates that the security's price will move with the market. A beta less than 1 indicates
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8.3 Payback period a. Payback period is a kind of “break-even” measure. To actually compute the payback period, it is assumed that any cash flow occurring during a given period is realized continuously throughout the period, and not at a single point in time. The payback is then the point in time for the series of cash flows when the initial cash outlays are fully recovered. The payback criterion decision rule is to accept projects that payback before this cutoff, and reject projects that take
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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 firm
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favorable under NPV and IRR analysis! Project A 02. Annual revenues Annual operating costs System investment Project life $240,000 120,000 360,000 5 years Project B $300,000 160,000 420,000 5 years Question: If the cost of capital were 12% pa, which project will you recommend? Briefly explain your supporting calculation! Management Control System - TA Genap 1516 By: Natalis Christian, SE., MM. 1 Answer 01. Project A NPV = ((PVIF, 8%, 2 years) x $ 1,440,000) - $ 1,000,000 IRR = ((PVIF, ??%, 2 years)
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CAPITAL BUDGETING DECISION 1. Meaning Capital budgeting denotes situation where funds are invested immediately and returns are expected after a year. In growing orgnisation capital budgeting is more or less continuous process and it is carried out by top management. The role of any Finance Manager is to critically evaluate proposal, evaluation of alternative proposal and select best one. The following are the some of the cases where heavy capital investment may be necessary. A) Replacement
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AN APPRAISAL OF CAPITAL BUDGETING TECHNIQUES (A CASE STUDY OF FORTHRIGHT SECURITIES AND INVESTMENT LIMITED, MARINA, LAGOS) BY OLOJOTUYI OLUFEMI O. FPA/AC/09/3-0101 BEING A PROJECT REPORT SUBMITTED TO THE DEPARTMENT OF ACCOUNTANCY SCHOOL OF BUSINESS STUDIES, THE FEDERAL POLYTECHNIC, ADO EKITI EKITI STATE IN PARTIAL FULFILLMENT OF REQUIREMENTS FOR THE AWARD OF HIGHER NATIONAL DIPLOMA IN ACCOUNTANCY DECEMBER, 2011. CERTIFICATION This
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(720) | (720) | (720) | 0 | 0 | Free Cash Flow | (120) | 480 | 480 | 480 | 1,200 | 600 | DCF Valuation | (109) | 396.69 | 360.63 | 327.85 | 745.11 | 338.68 | | | | | | DCF | 2,059.87 | 3. Compute EnCom’s internal rate of return. IRR | 14.76% | | | 4. Prepare financial statements (income statements and balance sheets) for EnCom for each of the five periods that it is in business. Income Statement | Y1 | Y2 | Y3 | Y4 | Y5 | Revenue | 1,200 | 1,200 | 1,200 | 1,200 | 1
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METHODS OF EVALUATING CAPITAL INVESTMENTS Non-discounted cash flow methods * Payback period * Payback reciprocal * Payback bail-out period * Accounting rate of return Discounted cash flow methods * Net present value * Present value index (profitability index) * Annualized net present value or Equivalent annual annuity * Present value/discounted payback * Internal rate of return *
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Fin 221 Fall 2006 Exam 4 Multiple Choice Identify the choice that best completes the statement or answers the question. 1) Several years ago the Haverford Company sold a $1,000 par value bond that now has 25 years to maturity and an 8.00% annual coupon that is paid quarterly. The bond currently sells for $900.90, and the company's tax rate is 40%. What is the component cost of debt for use in the WACC calculation? A. 5.40% B. 5.73% C. 5.98% D. 6.09% E. 6.24% 2) Assume that Mary Brown
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AC505-Managerial Accounting Project BClark Paint Capital Budgeting ProblemData: Cost of new equipment200,000$Expected life of equipment in years5Disposal value in 5 years40,000$Life production - number of cans5,500,000 Annual production or purchase needs1,100,000 Initial training costsNumber of workers needed3Annual hours to be worked per employee2000Earnings per hour for employees12.00$Annual health benefits per employee2,500$Other annual benefits per employee-% of wages18%Cost of raw materials
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