order to make a comparison and choose just one or a few. It is the process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing. Oftentimes, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark. Ideally, businesses should pursue all projects and opportunities that enhance shareholder value. However, because the amount of
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FUNDAMENTALS OF Corporate Finance SECOND EDITION This page intentionally left blank FUNDAMENTALS OF Corporate Finance SECOND EDITION Jonathan Berk STANFORD UNIVERSITY Peter DeMarzo STANFORD UNIVERSITY Jarrad Harford UNIVERSITY OF WASHINGTON Prentice Hall Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei
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Even in the world of academia, the determination to which method is more accurate or desirable is not certain. Financial managers and academics both have their own theories, however neither seem to agree. To determine if an investment is worth the cash to invest in, one of the ways a financial manager can determine profitability is that they will look at the investments net present value. The amount the investment would cost to payback each year and with how long it would take to pay for the investment
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handed you the estimated cash flows for two proposed projects. Project L involves adding a new item to the firm’s ignition system line; it would take some time to build up the market for this product, so the cash inflows would increase over time. Project S involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 3-year lives, because Allied is planning to introduce entirely new models after 3 years. Here are the projects’ net cash flows (in thousands of dollars):
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Value is defined as: A. Future cash flows discounted to the present at an appropriate discount rate B. Inverse of future cash flows C. Present cash flow compounded into the future D. None of the above 3. If the interest rate is 12%, what is the 2-year discount factor? A. 0.7972 B. 0.8929 C. 1.2544 D. None of the above 4. If the present value of the cash flow X is $240, and the present value cash flow Y $160, then the present value of the combined cash flow is: A. $240 B. $160 C. $80 D. $400
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method for the cash flow statement. The key issues to be discussed in this assignment is about whether the option of using the indirect method of cash flow reporting is beneficial to the users of general purpose financial reports in Australia. Furthermore, the reasons for harmonization, accounting standard AASB 107 Statement of Cash Flows and the Conceptual Framework will also be discussed. In AASB 107, cash flow is defines as inflows of the cash and cash equivalents and ‘cash’ as cash on hand and
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Chapter 5: 1. Interest rates are quoted on a annual, semi-annual, quarterly, and monthly basis. Interest rates are reported as effective annual rates or annual percentage yield most commonly. Another type of interest rate is known as annual percentage rate. An example of this is Kim is taking out a loan on a house and the annual percentage rate is 4.2%. A different example would be Lisa is taking out a loan on a car and the annual percentage rate is 2.99%. A third example is Travis deposited
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FASB 144 Impairment of Assets Assets held for use Includes land, building, equipment, natural resources, and intangible assets FASB 147 specifies that intangibles from the banking industry are covered by FASB 144 rules: Long-term customer relationship assets such as Depositor-relationships intangible assets Borrower-relationships intangible assets Credit card holder Intangible assets When should
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Capital Budgeting 3 Payback Period The first capital budgeting method is the payback period. The payback period is the amount of time it takes for a given project’s cumulative net cash inflows to recoup the initial investment (Graham, Smart & Megginson, 2010, p. 235). A company will determine what their payback period criteria are, and if that time frame is not met, the investment will be rejected. This is the simplest of all the
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accounting used in any given jurisdiction; generally known as accounting standards or standard accounting practice. These include the standards, conventions, and rules that accountants follow in recording and summarizing and in the preparation of financial statements. 5. The ___________ ___________ ____________ Board establishes the rules for financial accounting. Financial Accounting Standard Board 6. What is the accounting equation? Accounting equation is the basic accounting foundation to
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