NPV and IRR methods which are used in capital budgeting to analyse the profitability of an investment. The NPV gave me a positive Net Present Value of €1,037,312 (Appendix 1) after using a discount rate of the WACC calculated of 12.79% for companies in this industry. Since this project gives us a very high NPV this project should be accepted under this method. I also calculated the Internal Rate of return for this product to confirm what the NPV has told us, to accept the project. IRR would generally
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Evident within the analysis of financial management is the goal of maximising shareholder wealth. Pertaining to this goal is the methodology of capital budgeting, referred to as Net Present Value analysis(NPV). This concept evaluates a capital investment project measuring the difference between its cost and the present value of its expected cash flows (Parrino et al. 2014, p.339). More simply, the NPV tell us the amount by which the benefits from a capital expenditure exceed its costs (Parrino et
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behind the Net Present Value (NPV) and Internal Rate of Return (IRR) results, description between the relationship of NPV and IRR, and the reasoning behind the acquisition recommendation in the Microsoft Excel spreadsheet. Two corporations (A and B) were studied with given revenue values and expenses, as well as depreciation expenses, tax rates and discount rates. They were used to compute corporations’ income statement, cash flow, NPV and IRR value using Microsoft Excel spreadsheet. “The NPV compares
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0233= 2.33% b. What is the dollar-weighted rate of return? | 2010 | 2011 | 2012 | 2013 | Net cash Flow | (-100*3)= -300 | (-110*2)+(4*3)=-208 | (90*1)+(4*5)=110 | (95*4)+(4*4)=396 | 0= (-300) + [-208/ (1+IRR)] + [110/(1+IRR)2] + [396/(1+IRR)3] Dollar-weighted rate of return= IRR= -0.1661% 12. a. What is the expected return and standard deviation of your client’s portfolio? Expected return= yE(rp)+(1-y)rf = (0.7*0.17) +(0.3*0.07)= 0.14= 14% Standard deviation= y *σrp = (0.7*0.27)= 0
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Gerhardt Corporation’s cost of capital is 15%, should they accept this project? a. yes, the NPV is £25 million b. yes, the NPV is £1.93 million c. yes, the IRR is greater than 15% d. b and c 3. The payback of an investment is 2.25 years. The project’s cash flows are as indicated below. What s the IRR of the investment project? Year Cash Flow 1 $1,000 2 $1,500 3 $2000 4 $2500 a. not enough information b. 3.73% c.
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1. (1) Option #3 was for Stryker Instruments to manufacture its own PCBs in its own facility near company headquarters. (2)Benefits for option 3: ● Better control the quality, delivery and cost; ● Maintain the business stability; ● Supply PCBs to other Stryker businesses; ● Be able to implement cost shift and avoid tax; (3) Risks for option 3: ● Carry the inventory; ● Incur large capital outlay and sunk cost; ● Increase headcount, payroll
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a. Should Caledonia focus on cash flows or accounting profits in making its capital-budgeting decisions? Should the company be interested in incremental cash flows, incremental profits, total free cash flows, or total profits? Caledonia should focus on cash flows, not accounting profits. Free cash flows are able to be reinvested, whereas accounting profits are shown when they are earned, not when the cash is actually received. The company should be interested in incremental after-tax cash flows
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tools, it is interesting to discover that each car presents a different future valuation. The decision to purchase the BMW 335i was made based on the results from the mathematical calculation of Net Present Value (NPV) and Internal Rate of Return (IRR). The procedures used to arrive at this conclusion are laid out step by step. Although some assumptions are made before the final conclusion, this financial analysis assumes the nature of real-time estimation of any investment which future yields matter
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Capital Structure Recommendation There are a number of capital structure options available to provide funding for a Canadian expansion. Capital structure strategy should have two main objectives: align with operating strategy and maximize total shareholder returns. Too much debt leverage can lead to credit default and insolvency. Capital financing using bonds has risks because some types of bonds may place responsibility on the company to provide dividends, which could impact shareholder earnings
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Corporate Finance Basics Topics 1) 2) 3) 4) 5) 6) Capital Budgeting Cost of Capital Measures of Leverage Dividends and Share Repurchases Working Capital Management Financial Statement Analysis Capital Budgeting Introduction The Capital Budgeting Process is the process of identifying and evaluating capital projects, i.e., projects where the cash flow to the firm will be received over a period longer than a year. Capital budgeting usually involves the calculation of each project’s future accounting
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