CASE STUDY GROUP 6
Team members: Iñaki aizbitarte, Urko Ortega, Davide Rotta, Simone Zou, Pasquale Reitano

INTRODUCTION
The company that we have decided to consider for this analysis is the Italian factory Fiat spa. Fiat is a global group with a clear focus in the automobile sector. Through its various businesses, it designs, produces and sells automobiles and related components and production systems. Fiat was one of the founders of the European car industry and today, as a result of its partnership with Chrysler, has a manufacturing and commercial base of sufficient scale to compete as a global automaker. The Fiat group after the entered in the American market with the acquisition of the quota of majority of Crysler is found again of forehead, over that to a new market, also to a new coin with all those that can be the risks over how commercial also those financial. Nevertheless, right now, the exchange rate between these two currencies is 1 euro =1.3118 dollars so in order to make easier the case we will use 1.31 to round it up.

The politics of the Group related to the management of the risk of change foresee, as a rule, the coverage of the future commercial flows that you/they will have bookkeeping demonstration within 12 months and of the orders acquired (or committed in progress) to put aside from their expiration. It is reasonable to believe that the relative effect of coverage suspended in the Reserve of cash flow hedge will primarily be in relief to economic account in the following exercise. The Group is exposed to consequential risks by the variation of the rates of change, that you/they can influence on its economic result and on the value of the clean patrimony. Particularly: Whereas the societies of the Group sustain costs denominated in different currencies by those of denomination of the respective proceeds, the variation of the rates of change can influence the Result operational of such societies. In 2012, the general amount of...

...Examples Of NetPresentValue (NPV), ROI and
Payback Analysis
Introduction
Terms and Definitions
NetPresentValue - Method of calculating the expected net monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time.
Discount Rate - Also known as the hurdle rate or required rate of return, is the rate that a project must achieve in order to be accepted rather than rejected.
Return on Investment – Expected income divided by the amount originally invested
Payback Analysis – The number of years needed to recover the initial cash outlay.
Formulas
NetPresentValue = (t=1..n A * (1+r)-t OR (t=1..n A/ (1+r)t
Where A = Cash flow
r = Required rate of return
t = year of cash flow
n = the nth year
Return On Investment = (Discounted Benefits – Discounted Costs) / Discounted Costs
Payback Period = Years taken to repay initial outlay .
Eg. Project Z Outlay = $ 4000
Yearly cash flows = $2000...

...Netpresentvalue
In finance, the netpresentvalue (NPV) or netpresent worth (NPW) of a time series of cash flows, both incoming and outgoing, is defined as the sum of the presentvalues (PVs) of the individual cash flows. In case when all future cash flows are incoming (such as coupons and principal of a bond) and the only outflow of cash is the purchase price, the NPV is simply the PV of future cash flows minus the purchase price (which is its own PV). NPV is a central tool in discounted cash flow (DCF) analysis, and is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, finance, and accounting, it measures the excess or shortfall of cash flows, in presentvalue terms, once financing charges are met.
The NPV of a sequence of cash flows takes as input the cash flows and a discount rate or discount curve and outputting a price; the converse process in DCF analysis, taking as input a sequence of cash flows and a price and inferring as output a discount rate (the discount rate which would yield the given price as NPV) is called the yield, and is more widely used in bond trading.
Formula
Each cash inflow/outflow is discounted back to its presentvalue (PV). Then they are...

...thereafter). If TecOne investors want a 40 percent rate of return on their investment, calculate the venture’s presentvalue.
B. Now assume that the Year 6 cash flows are forecasted to be $900,000 in the stepping stone year and are expected to grow at an 8 percent compound annual rate thereafter. Assuming that the investors still want a 40 percent rate of return on their investment, calculate the venture’s presentvalue.
C. Now extend Part B one step further. Assume that the required rate of return on the investment will drop from 40 percent to 20 percent beginning in Year 6 to reflect a drop in operating or business risk. Calculate the venture’s presentvalue.
2. Assume the forecasted cash flows presented in Problem 1 for the TecOne Corporation venture also hold for the LowTec venture. However, investors in LowTec have an expected rate of return of 30 percent on their investment until Year 6 when the rate of return is expected to drop to 18 percent. The perpetuity growth rate for cash flows after Year 6 is expected to be 7 percent.
A. Determine the presentvalue for the LowTec venture.
B. If an outside investor offers to invest $1,500,000 dollars today, what percentage ownership in LowTec should be given to the new investor?
3. Ben Toucan, owner of the Aspen BrewPub and Restaurant, wants to determine the...

...additional mutually exclusive projects, for Week’s four assignment, Team D will formulate answers to determine what between Project A and Project B each project’s payback period, netpresentvalue, and internal rate of return. In addition, the team will give an analysis of what caused the ranking conflict and which project should be accepted and why. With a final comment, the team will describe factors Caledonia must consider if they were doing a lease versus buy.
Cash flows associated with these projects
RRR = 11%
Year PROJECT A PROJECT B 11%
0 ($100,000) ($100,000)
1 32,000
2 32,000 0
3 32,000 0
4 32,000 0
5 32,000 $200,000
NPV $18,269 $18,690
Required rate of return on these projects is 11 percent
a. What is each project’s payback period?
Year Project A Project B PresentValue (PV) @ 11% Project A Project B
0 -100,000 -100,000 1 -100000 -100,000
1 32,000 0 0.90 28828 0
2 32,000 0 0.81 25971 0
3 32,000 0 0.73 23398 0
4 32,000 0 0.66 21079 0
5 32,000 200,000 0.59 18990 118690
Project a 100000/32,000=3.125 years
Project b 100,000/200,000=0.5 There was no cash flow for the first 4 years 4+0.5=4.5 years
Project A’s payback period is 3.125 years whereas Project B is 4.5 years.
b. What is each project’s netpresentvalue?
The NPV for Project A is $18,269, whereas the NPV...

...1. Basic presentvalue calculations
Calculate the presentvalue of the following cash flows, rounding to the nearest dollar:
a. A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.
b. An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.
c. A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return.
d. An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has a 16% rate of return.
2. Cash flow calculations and netpresentvalue
On January 2, 20X1, Bruce Greene invested $10,000 in the stock market and purchased 500 shares of Heartland Development, Inc. Heartland paid cash dividends of $2.60 per share in 20X1 and 20X2; the dividend was raised to $3.10 per share in 20X3. On December 31, 20X3, Greene sold his holdings and generated proceeds of $13,000. Greene uses the net-present- value method and desires a 16% return on investments.
a. Prepare a chronological list of the investment's cash flows. Note: Greene is entitled to the 20X3 dividend.
b. Compute the investment's netpresentvalue, rounding calculations to the nearest dollar.
c. Given the results of part (b),...

...accounting concepts
a) Business entity
b) Money measurement
c) Continuity
d) Cost
e) Accrual
f) Conservatism
g) Materiality
h) Consistency
i) Periodicity
Solution: FUNDAMENTAL CONCEPTS OF ACCOUNTING
Accounting is the language of business and it is used to communicate financial information. In order for that information to make sense, accounting is based on 12 fundamental concepts. These fundamental concepts then form the basis for all of the Generally Accepted Accounting Principles (GAAP). By using these concepts as the foundation, readers of financial statements and other accounting information do not need to make assumptions about what the numbers mean.
For instance, the difference between reading that a truck has a value of $9000 on the balance sheet and understanding what that $9000 represents is huge. Can you turn around and sell the truck for $9000? If you had to buy the truck today, would you pay $9000? Or, perhaps the original purchase price of the truck was $9000. All of these assumptions lead to very different evaluations of the worth of that asset and how it contributes to the company’s financial situation.
For this reason it is imperative to know and understand the eleven key concepts.
a)Business equitity:
When starting or expanding a business, many owners wonder if they should form a business entity and, if so, which one they should use. There is a wide variety of information and "pitches" being made on the...

...cash flows to promptly recover its cost? b Will an investment generate an acceptable rate of return? c Will an investment have a positive netpresentvalue? d Will an investment have an adverse effect on the environment? 3 Which of the following is not considered when using the payback period to evaluate an investment? a The profitability of the investment over its entire life. b The annual net cash flow of the investment. c The cost of the investment. d The expected life of the investment. Use the following data for questions 4 and 5. Stone Mfg. is considering expanding operations by investing $300,000 in equipment. The equipment has a useful life of eight years, with no salvage value. Straight-line depreciation is used. Stone predicts that net income will increase $37,500 per year as a result of this strategy. 4 Refer to the above data. The payback period for this investment is: a 8 years. b 4 years. c Over 13 years. d 2.5 years. 5 Refer to the above data. Return on average investment for this investment is: a 25%. b 20%. c 12 1/2%. d 15%.
CHAPTER 26 10-MINUTE QUIZ B
NAME SECTION
#
Physician’s Pharmacy is considering the purchase of a copying machine which it will make available to customers at a per-copy charge. The copying machine has an initial cost of $7,500, an estimated useful life of five years, and an estimated salvage value of $500. The estimated annual...

...Initial investment
An initial investment is the money a business owner needs to start up a firm. It might include the business owner's own money, money borrowed from an array of sources including family and friends or banks, or capital raised from investors. The term initial investment is also used as the money a business owner uses to invest in a capital investment venture such as a piece of equipment or a building.
IRR
The higher a projects internal rate of return, the more desirable it is to invest in the project. Some ways to use the IRR method are:
• Discounted Cash Flow Analysis - Find the interest rate return that you would receive as your investment return rate.
• Capital Budget Planning - Go through the capital budget process so that you make the best economic decision.
• Discounted Cash Flow Analysis - When you calculate IRR you will have one number for an objective comparison between capital projects.
• Investment Calculator - Determine if a potential investment is a good choice or not.
• Compound Rate of Return - Understand the compounding effect of interest on investments. ("Calculating internal rate,")
Deciding between investments
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million...

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