Net Present Value/Present Value Index The management team at Savage Corporation is evaluating two alternative capital investment opportunities. The first alternative‚ modernizing the company’s current machinery‚ costs $45‚000. Management estimates the modernization project will reduce annual net cash outflows by $12‚500 per year for the next five years. The second alternative‚ purchasing a new machine‚ costs $56‚500. The new machine is expected to have a five-year useful life and a $4‚000
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1 - Energy Costs Find information on energy cost: Advantages (government websites) 2 - Cost of Equity‚ Appropriate Discount Rate (WACC) Cost of equity 1. Formula Risk Free Rate + (Market Premium x Overall Company Beta) 2. Each part a. Risk free rate (10-year T-bill) i. bond rating chosen * interest rate * b. Market premium c. Beta i. Appropriate Discount Rate (WACC) 1. Formula Weight of Debt x After-Tax Cost of Debt) + (Debt to Equity x Cost of Equity) 2. WACC (important – why is it important
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Which of the following is NOT an element of manufacturing overhead? a. Factory employee’s salary 2. What accounts are NOT classified in the current assets section of the balance sheet? a. Accounts payable 3. The starting point of a master budget is the preparation of the a. sales budget. 4. What amounts are not included in Gross Margin? a. Operating expenses 5. At what rate is the income statement converted for US $ comparison? a. Average rate 6. Which
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. To find the PVA‚ we use the equation: PVA = C({1 – [1/(1 + r)]t } / r ) PVA = $60‚000{[1 – (1/1.0825)9 ] / .0825} PVA = $370‚947.84 The present value of the revenue is greater than the cost‚ so your company can afford the equipment. 7. Here we need to find the FVA. The equation to find the FVA is: FVA = C{[(1 + r)t – 1] / r} FVA for 20 years = $3‚000[(1.08520 – 1) / .085] FVA for 20 years = $145‚131.04 FVA for 40 years = $3‚000[(1.08540 – 1) / .085] FVA for 40
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1. How much will $1000 deposit in savings account earning a compound annual interest rate of 6% be worth at the end of the following number years? a) 3 years $1‚191 b) 5 years $1‚338 c) 10 years $1‚791 2. If you require a 9% return on your investment which would you prefer? a) $5‚000 today PV = $5‚000 b) $15‚000 five years from today PV = $9‚748.50 c) $1‚000 per year for 15 years PV = $8061 Select option b
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account after 5 years? 2. What is the present value of a security that promises to pay you $5‚000 in 20 years? Assume that you can earn 7 percent if you were to invest in other securities of equal risk. 3. If you deposit money today into an account that pays 6.5 percent interest‚ how long will it take for you to double your money? 4. Your parents are planning to retire in 18 years. They currently have $250‚000 and they would like to have $1‚000‚000 when they retire. What annual rate of interest
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Present value is where the value on a set date of a future payment is discounted to reflect the time value of money and other factors. This can also apply to a series of future payments. Present value calculations are commonly utilized in business and economics to provide a way to compare cash flows at different times. Present value can be described as the current worth of a future sum of money or stream of cash flows given a specified rate of return. (http://www.getobjects.com) Future cash flows
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Net present value is defined as the total present value (PV) of a time series of cash flows. It is a standard method for using the time value of moneyto appraise long-term projects. Used for capital budgeting‚ and widely throughout economics‚ it measures the excess or shortfall of cash flows‚ in present value terms‚ once financing charges are met. The advantages of the NPV are following; first‚ it tells whether the investment will increase the firm’s value. Also‚ it considers all the cash flows‚
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“SmithJMidtermExam”) and submit it in the appropriate assignment folder in your WebTycho classroom before the end of the exam period. Submit only your answer sheet. 1.) Which of the following is an appropriate goal for the firm? a. revenue maximization b. profit maximization c. tax minimization d. shareholder wealth maximization 2.) Which of the following is NOT one of the strategies incorporated in the Sarbanes-Oxley Act of 2002? e. attain greater board independence
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Problems‚ misconceptions and research directions * Specifically‚ it has been alleged that the traditional appraisal methods of payback‚ discounted net present value (NPV) and internal rate of return (IRR) undervalues the long-term benefits; that traditional financial appraisals assume a far too static view of future industrial activity‚ under-rating the effects and pace of technological change; that there are many benefits from investments in new technology which are difficult to quantify and
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