has been adjusted over the years to allow for downward trends due to competitive pressure. However, cost sensitivity needs to be analyzed. Variable cost per unit can be increased by 10% up to 30% and the impact on cash flows and Net Present Value and IRR can be analyzed. 4. How should the interest expenses be treated? Explain. The interest expense should not be deducted when calculating the annual cash flows. Interest is a financing expense and is included in the discount rate (cost of capital)
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7 Appendices 7 Appendix A 7 Objectives This report seeks to answer the following three questions about the Boeing 7E7 project: 1. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7? a. Please use the capital asset pricing model to estimate the cost of equity. b. Which equity market risk premium (EMRP) did you use? Why? c. What Beta did you use and how did you derive it? d. Which
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Fakulteti Ekonomik Departamenti i Financës Seksioni i Financës Miratoi Përgjegjësi i seksionit të financës Prof. Dr. Beshir CICERI Tezë provimi (versioni B e zgjidhur) Dega: Biznes Lënda: Drejtim Financiar Data: 29.06.2005 Koha: 2 orë Seksioni 1 (40 pikë) Test Çdo përgjigje e saktë vlerësohet me 2 pikë. Çdo pyetje pa përgjigje, me dy apo më shumë përgjigje, si edhe me përgjigje të gabuar vlerësohet me 0 pikë. Zgjidhni alternativën tuaj pa dhënë shpjegime
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JET 2 Task 3 Deborah U. Myers The definition of capital structure is a “combination of a company’s long term debt, specific short term debt, common equity, and preferred equity, the capital structure is the firm’s various sources of funds use to finance its overall operations and growth. Debt comes in the form of bond issues or long-term notes payable, whereas equity is classified as common stock, preferred stock, or retained earnings. Short-term debt such as working capital requirements also
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return on assets is 11%, what is Bill's profit margin? • 11% • 4.10% • 2.50% • 3.79% 5. What are the acceptance criteria for NPV? • If the NPV is less that $0, accept the project. • If the NPV is greater than $0, accept the project. • If the IRR is equal to 0%, reject the project. • If the NPV is equal to the discounted payback, accept the project. University of Phoenix Final Exam Study Guide FIN 575 Final Exam 6. The risk response plan answers what question? • What can be done if risk
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between 0.8 and 1.2. Low-risk projects are evaluated with a WACC of 8%, and high-risk projects at 13%. a. Develop a spreadsheet model, and use it to find the project’s NPV, IRR, and payback. Key Output: NPV = Part 1. Input Data (in thousands of dollars) IRR = MIRR = Equipment cost $10,000 Net WC/Sales 10% Market value
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Memo OCEAN CARRIERS Date: January 2, 2001 To: Mary Linn, Vice President of Finance From: Thomas Harper Subject: Investment in New Capesize Bulk Ship After analyzing the commissioning of a new capsize ship for a three-year lease, my team has come to the conclusion that Ocean Carriers should move forward with the investment only if it is built and registered in our Hong Kong office. There were key assumption my team and I made in our analysis and they are as follows:
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The calculation is in the attached file(Excel) 3. Calculate the net present value, payback period, and the traditional IRR for each tanning option under the various scenarios. What do the decision rules indicate? The NPV is higher for the dome unit, but the tanning unit has a lower payback and a higher IRR. Decision rule would suggest that higher NPV, lower payback and higher IRR should be accepted. Under mutually exclusive situation as we have here where we need to select between dome or tanning
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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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TABLE OF CONTENT ACKNOWLEDGEMENTS 2 1. COLEMAN SYSTEM BACKGROUND INFORMATION 4 2. COST OF CAPITAL FOR COLEMAN SYSTEMS 5 2.1 Calculate cost of debt (rd) 5 2.2 Calculate ratio debt/capital and equity/capital in market value terms 6 2.3 Calculate Beta (β) for Coleman Systems 8 2.4 Calculate Cost of Equity 10 2.5 Calculate the weighted average cost of capital for Coleman Systems 10 3. THE WACC AND PROJECT VALUES FOR DIFFERENT DEBT – EQUITY
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