Financial Management Lecture 1 Corporate Finance/Financial Decisions: Three important steps. * The Investment Decision: Expand, selling and so on. Decisions to spend or earn money. Capital budgeting. Capital budgeting is the planning and managing of a firms investment in non-current assets. The main thing is the cash flow. Evaluating; * Size of future cash flows * Timing of future cash flows * Risk to future cash flows. Cash flow timing is when a dollar today
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which consists an analysis on expectations from different managers of the firms and the impacts of their expectations on the Merseyside project DCF analysis. The results of the analysis and modifications are a positive NPV of GBP 13.5 million and an IRR of 25.97%. The Merseyside project should be accepted as long as the cost of capital is lower than 25.97%. Appendix 1 shows the detailed working of the analysis. Firm Evaluation on Capital-Expenditure Proposals Victoria Chemicals evaluate capital-expenditure
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conditions of: 120 days Of all the options this one was the one that promised the highest degree of control over quality and delivery. 2.Use the projections provided in the case to compute incremental cash flows for the PCB project, as well as its NPV, IRR and payback period. The projections in the case shows Instruments’ expected expenditures on PCBs for the year 2004 to the year 2009 under the old sourcing strategy using contract manufacturers. These projections of expenditures include growth in volume
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Overview In the spring of 1950 the controller for Economy Shipping Company was asked to report on whether or not the company should refurbish an old steamboat, the Conway, or if they should replace the steamboat with a diesel boat. Economy’s business was to transport coal from the nearby mines to steel mills, public utilities, and other industries in the Pittsburgh area. All of the steamboats that Economy owned were at least 10 years old, with the majority being 15 to 30 years old.
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and Belgium offering individual proposals, a thorough analysis is done to determine which proposal is ideal for the organization. After calculating the net present value (NPV) and internal rate of return (IRR) for both proposals, it seems Sweden has a higher NPV, whereas Belgium has a higher IRR (Appendix 1). However, the difference between the two NPV’s (approximately Skr. 13,000) is relatively small compared to the difference between the two IRR’s (approximately 39%).
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Chapter 13: 1) E13-14 (5 points); 2) E13-16 (5 points); 3) E13-18 (5 points); 4) E13-19 (1 point); 5) P13-23A (8 points); 6) P13-25A (8 points); 7) P13-33A parts a, b and c only (8 points); 8) P13-39B (8 points); 9) P13-42B (7 points) Solutions: E13-14 (5 points): (a) The cash payback period is: $48,000 ÷ $8,000 = 6 years The net present value is: | | Time Period | | CashFlows | × | 9% DiscountFactor | = | PresentValue | Present value of net annual cash flows |
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the costs of an investment to the initial capital to determine if the investment will generate more capital or cash flow for the company. The four capital budgeting techniques used by management are Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), and Payback method. SAC has developed new manufacturing techniques to offer special spark plugs for the auto racing industry. The company is considering purchasing new equipment to manufacture these new spark plugs to enable
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project or not. Six issues will be discussed as follows 1) importance of energy cost; 2) project’s cash flows; 3) cost of capital; 4) choose an engine 5) evaluation 6) accept or reject. We should accept the project because of the positive NPV and high IRR. We will gain $532 million in wealth which is a big money on the scale like this. The company has a bond rating of AA that makes the risk relatively low. So we should definitely say yes. Issues Importance of Energy Cost Road King Trucks, Inc. is
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2009. Analysis 1. Does this project make sense? We like the insourcing proposal and think that it makes business sense for several reasons. However, these reasons are based off of the information taken from the case before we analyzed NPV, IRR, or Payback Period, so they are strictly inferences made using sound business sense. First, we think insourcing is a good strategic move on the basis of having inconsistent and weak suppliers. When the suppliers you are working with are neither
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Part A: BUDGETING PROCESS 1. Definition [1] * A budget is the financial blueprint or action plan for an organization. It translates strategic plans into measurable expenditures and anticipated returns over a certain period of time * Budgeting is the process of creating and preparing an organization for the future. 2. Objectives[2] * The budget provides a yardstick for future results can be compared; * It allows management to plan and forecast in the areas of capital adequacy
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