necessarily the best investment because payback ignores cash flows that occur after the cut-off period, resulting in a bias for short-term projects. 4. Investment A: NPV = –2,000 + 1040/1.06 + 1260/(1.06)2 + 1954/(1.06)3 = $1,743 Investment B: NPV = –2,000 + 820/1.06 + 880/(1.06)2 + 3800/(1.06)3 = $2,748 Investment B is the better investment. 12. A: 100 = 100/(1 + IRR) + 200/(1 + IRR)2 – 100/(1 + IRR)3 Descartes rule of sign states there could be two solutions. IRR =
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Economic Analysis Good management consists primarily of making wise decisions; wise decisions in turn involve making a choice between alternatives. Engineering considerations determine the possibility of a project being carried out and point out the alternative ways in which the project could be handled. Economic considerations also largely determine a project's desirability and dictate how it should be carried out. A feasibility study determines either which or the whether of the proposed project:
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Chapter 13 The Basics of Capital Budgeting Evaluating Cash Flows ANSWERS TO END-OF-CHAPTER QUESTIONS 13-1 a. The capital budget outlines the planned expenditures on fixed assets. Capital budgeting is the whole process of analyzing projects and deciding whether they should be included in the capital budget. This process is of fundamental importance to the success or failure of the firm as the fixed asset investment decisions chart the course of a company for many years into the future
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ACC 310 Fall 2013 Research Case Two 1. International Financial Reporting Standards, abbreviated “IFRS”, are a set of high quality, understandable, enforceable, and globally accepted rules for companies to use all over the world. These IFRS are permitted or required in around 120 countries. Companies, securities regulators, investors, creditors, and other business people alike prefer to have comparable financial statement information when making business transaction internationally. IFRS presents
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is excluded from the board of directors which means there is not dual rule for company’s CEO. Second, the solid foundation is laid for the management. In the company, the boards of directors take responsibility for the management of the whole company and the Corporate Governance Committee of the board is in charge for supervising the senior executives to maximize the shareholders’ wealth. Besides, to comply with the ASX rules, the company restructured the board in 2006 and the Audit Committee was
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Prudence means being careful or cautious. The prudence concept is an ethical concept that is based on the principle that revenue and profits are not anticipated, but are included in the income statement only when realized in the form of cash or other assets, the ultimate cash realization of which can be assessed with reasonable certainty. Provision must be made for all known liabilities and expenses, whether the amount of these is known with certainty or is a best estimate in the light of information available
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and helps with support and stability for fragile/injured feet. After an evaluation of the cash flows for Vienna Orthopedics Pty Ltd, I would definitely recommend that they expand the project to Melbourne. Some of the reasons for my recommendation are. Incremental Cash Flow In regards to Capital budgeting, an incremental cash flow is used to help evaluate a project. It shows the firm's potential cash flows which can help make the decision of whether to accept or reject a project. Net Present value
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unable to pay back all the money it owes; in this situation, the liabilities of a firm supersede the assets leading to the inability to pay debts. MAINTENANCE OF CAPITAL RULE The concept was outlined in Trevor v Whitworth where the concept of share buyback by companies was held to be ultra vires, in support of the maintenance rule. In this case Lord Herschell stated that “the capital may, no doubt, be diminished by expenditure upon and reasonably incidental
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Cash Flow and Payment Terms Cash flow is the lifeblood of any organisation. Companies in the private sector generally focus on increasing profits, but it is inadequate cash flows that can cause serious financial difficulties. With increased fuel and food prices and predictions of a US recession, never has there been a more important time to track cash flow. As value protectors and risk managers, this is a key role for the procurement function. Cash flow is a major concern to SMEs and often threatens
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/ total taxable income. Marginal tax rate: amount of tax payable on the next dollar earned. Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Shareholders Cash Flow from Assets = Operating Cash Flow (EBIT + Dep - Tax) – Net Capital Spending (Ending Net Fixed Assets – Beginning NFA + Dep) – Change in Net Working Capital Cash Flow to Creditors = Interest Paid – Net New Borrowing Cash Flow to Shareholders = Dividend Paid – Net New Equity Raised Current Ratio: Current Assets / Current
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