"What Are The Advantages And Disadvantages Of Discounted Cash Flow Methods Such As Npv And Irr" Essays and Research Papers

  • What Are The Advantages And Disadvantages Of Discounted Cash Flow Methods Such As Npv And Irr

    ASSIGNMENT TOPIC: “THE ADVANTAGES AND DISADVANTAGES OF USINFG NPV (NET PRESENT VALUE) AND IRR (INTERNAL RATE OF RETURN)” NPV (NET PRESENT VALUE) The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield. NPV compares the value of a dollar today to the value...

    Capital budgeting, Cash flow, Discounted cash flow 1057  Words | 4  Pages

  • Please compare the advantages and disadvantages of the following investment rules: Net Present Value (NPV), Payback Period and Discounted Payback Period

    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, time value of money and the risk of future cash flows through the cost...

    Cash flow, Discounted cash flow, Internal rate of return 972  Words | 3  Pages

  • Explain the Theoretical Rationale for the Npv Approach to Investment Appraisal

    Explain the theoretical rationale for the NPV approach to investment appraisal and compare the strengths and weaknesses of the NPV approach to two other commonly used approaches. One of the key areas of long-term decision-making that firms must tackle is that of investment - the need to commit funds by purchasing land, buildings, machinery, etc., in anticipation of being able to earn an income greater than the funds committed. In order to handle these decisions, firms have to make an assessment...

    Cash flow, Discounted cash flow, Finance 1419  Words | 5  Pages

  • A Critical Evaluation of Three Basic Methods of Evaluating an Investment (Irr, Payback and Npv).

    Prepare a critical evaluation of three basic methods of evaluating an investment (IRR, Payback and NPV). There are several basic methods of evaluating an investments that are commonly used by decision makers in both private corporations and public agencies. Each of these measures is intended to be an indicator of profit or net benefit for a project under consideration. Some of these measures indicate the size of the profit at a specific point in time; others give the rate of return per period...

    Capital budgeting, Cash flow, Internal rate of return 2353  Words | 7  Pages

  • Npv vs Irr

    How do the results of the NPV technique relate to the goal of maximizing shareholder wealth? The NPV technique measures the present value of the future cash flows that a project will produce. A positive NPV means that the investment should increase the value of the firm and lead to maximizing shareholder wealth. A positive NPV project provides a return that is more than enough to compensate for the required return on the investment. Thus, using NPV as a guideline for capital investment decisions...

    Capital budgeting, Corporate finance, Discounted cash flow 1090  Words | 3  Pages

  • Investment appraisal method

    Table of Contents Section Pg Contents 1 Introduction 2 Background 3 Methods 4 Comparison and modification 7 Conclusion 9 References 10 Introduction With the development of business, more and more techniques have been widely used into companies...

    Capital budgeting, Cash flow, Corporate finance 1558  Words | 3  Pages

  • Capital Asset Pricing Model (Capm) Versus the Discounted Cash Flows Method

    Capital Asset Pricing Model (CAPM) Versus the Discounted Cash Flows Method Managerial Analysis/BUSN 602 Capital asset pricing model or CAPM is a financial model that measures the risk premium inherent in equity investments like common stocks while Discounted Cash Flow or DCF compares the cost of an investment with the present value of future cash flows generated by the investment with the mindset being that if the cash flow is positive, then the investment is good. Generally speaking, CAPM is...

    Capital asset pricing model, Cash flow, Discounted cash flow 1214  Words | 3  Pages

  • Internal Rate of Return (IRR) and Net Present Value (NPV) are both powerful tools used in business to determine whether or not to invest in a particular project; both methods have its pros and cons.

    Internal Rate of Return (IRR) and Net Present Value (NPV) are both powerful tools used in business to determine whether or not to invest in a particular project; both methods have its pros and cons. If given a choice I would choose NPV, because of the potential to anticipate profitability. As it is assumed that the objective of a firm is to create as much shareholder wealth as possible for its owners through the efficient use of resources, the preferred method in determining whether or not to invest...

    Capital budgeting, Discounted cash flow, Finance 853  Words | 3  Pages

  • Npv Comparison

    Bierman, Jr Executive Summary • • • Net present value (NPV) and internal rate of return (IRR) are two very practical discounted cash flow (DCF) calculations used for making capital budgeting decisions. NPV and IRR lead to the same decisions with investments that are independent. With mutually exclusive investments, the NPV method is easier to use and more reliable. Introduction To this point neither of the two discounted cash flow procedures for evaluating an investment is obviously incorrect...

    Capital budgeting, Cash flow, Discounted cash flow 2310  Words | 7  Pages

  • Capital Appraisal Methods

    Financial Management Summary of Capital Appraisal Methods QUESTION 1 Cardex Plc is considering investing in two new capital projects at different manufacturing locations. Each project entails the purchase of a range of new production machines, which would improve output volume and quality of products. Both of these projects are divisible ( ie. It is possible to undertake a fraction of a total project. ) Cardex Plc has only been able to negotiate a long term loan for, at 11% interest...

    Capital budgeting, Cash flow, Cost-benefit analysis 838  Words | 7  Pages

  • Question: Discounted Cash Flow

    Explain.  Our basic principle of stock valuation is that the value of a share of stock is simply equal to the present value of all of the expected dividends on the stock. According to the dividend growth model, an asset that has no expected cash flows has a value of zero, so if investors are willing to purchase shares of stock in firms that pay no dividends, they evidently expect that the firms will begin paying dividends at some point in the future. 2. Explain why some bond investors are...

    Bond, Cash flow, Discounted cash flow 741  Words | 3  Pages

  • Advantage and Disadvantage of Cash Flow Statement

    Difference Advantage Disadvantage and Uses of Cash Flow Statement & Funds Flow Statement There are 3 basic financial statements that exist in the area of Financial Management. 1. Balance Sheet. 2. Income Statement. 3. Cash Flow Statement.  The first two statements measure one aspect of performance of the business over a period of time. Cash flow statements signify the changes in the cash and cash equivalents of the business due to the business operations in one time period. Funds flow statements...

    Asset, Balance sheet, Cash flow 1537  Words | 5  Pages

  • Financial Appraisal Methods

    appraisal techniques and evaluate them by showing their strength and weaknesses. Then compare them with each other and show the main difference between them. At the end I will be showing some tables taken from different books ranking these methods and showing which methods are more used by most of the companies in the US and UK. Most of the competitive companies are looking for expansion and growth in order to control a bigger share of the market and eventually make more profits for the share holders...

    Capital budgeting, Cash flow, Discounted cash flow 1742  Words | 6  Pages

  • Accounting: Depreciation and Cash Flow

    (10-8) NPVs, IRRs, and MIRRs for Independent Projects Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is $17,100 and that for the pulley system is $22,430. The firm’s cost of capital is 14%. After-tax cash flows, including depreciation, are as follows: Year Truck Pulley 1 $5,100   $7,500   2 $5,100 $7,500 3 $5,100 $7,500 4 $5,100 $7,500 5 $5...

    Cash flow, Corporate finance, Depreciation 1376  Words | 6  Pages

  • Define an “Efficient Market” and the Three Forms of Market Efficiency. Explain How Each of the Forms Differs from a Perfect Market. Define Arbitrage and Explain What Kind of Information Is Needed for You to Obtain

    are the advantage and disadvantage of different investment rules. Net Present Value is used to calculate the net change in company’s asset with respect to a project after considering the time value of money. So company can base on the result to make the decision, where positive NPV should accept the project. The advantage of NPV is accurate to obtain the best decision since it can fairly rank different projects and classify them by their size and duration. Because NPV consider and apply cash flow...

    Cash flow, Discounted cash flow, Internal rate of return 853  Words | 3  Pages

  • Capital Budgeting Methods for Corporate Project Selection

    Capital Budgeting Methods for Corporate Project Selection In a 2001 Graham and Harvey survey of 392 chief financial officers (CFOs) asked “how frequently they used different capital budgeting methods?” Approximately 75% of the CFOs replied that they use net present value (NPV) or Internal Rate of Return (IRR) always or almost always (Smart, Megginson & Gitman, 2004, pg. 251). Projects are viewed as capital investments in the corporate world, and as such, are evaluated closely for their possible...

    Capital budgeting, Cash flow, Corporate finance 1783  Words | 5  Pages

  • IRR vs. MIRR Valuation Methods

    Carrie Simmons IRR v. MIRR Valuation Methods Bus 650 Managerial Finance Kristi Rayford February 7, 2012 1. Abstract The Internal Rate of Return (IRR) and Modified Internal Rate (MIRR) of Return are imperative to understanding the investment on a project and the expected returns or profitability. Under the valuation method of IRR is to accept the project which has the greater number of required rate of return, or otherwise, reject the project. However, MIRR is better indicator...

    Capital budgeting, Cash flow, Finance 1255  Words | 4  Pages

  • Financial Analysis Case Using Npv

    Upon initial examining of the cash flows for Exhibit 1, some of the eight projects can be ranked and others dismissed. For example, by adding cash flows and deducting the initial investment, we can immediately conclude a possible project ranking of 3,5,8,4,1,7,6,2. Project Net Profit(In thousands) 3 $ 8,000.00 5 $ 2,200.00 8 $ 2,150.00 4 $ 1,561.00 1 $ 1,310.00 7 $ 560.00 6 $ 200.00 2 $ 165.00 On initial inspection it would seem prudent to select our...

    Cash flow, Discounted cash flow, Future value 790  Words | 3  Pages

  • Free Cash Flow

    Pinkerton case - General Create NPV “Be Big” • Check out case instructions on bspace & begin working with your group Historical case – CPP’s  bid  to  acquire  Pinkerton  security  guard   firm in the late 1980s Provide executive summary & detailed analysis of value of acquisition Email  your  group’s  bid  to  GSI  before  6  p.m.  evening  before   discussion Be prepared to discuss the case in class (your answers, your analysis, etc.) 1 Valuation - Use NPV approach How to make investment decisions:...

    Basic financial concepts, Cash flow, Discounted cash flow 428  Words | 7  Pages

  • npv and irr

    value (NPV) and Internal rate of return (IRR) are used to determine whether to accept a project or not.Net Present Value (NPV)Net present value is the difference between the present value of cash inflows and the present value of cash outflows. It is used in capital budgeting to analyze the profitability of an investment or project. NPV= sum[CFt/(1+r)t]-C0  CFt– cash flow in the time t C0 – initial investment r – periodic interest rate NPV rule: Accept all independent projects with NPV greater...

    Capital budgeting, Cash flow, Discounted cash flow 540  Words | 2  Pages

  • Finance: Free Cash Flow

    strongly encouraged to use spreadsheets. Refer to Note on Sample Cash Flow Template. Question 1 (5 points) The project with the highest IRR is always the project with the highest NPV. Your Answer | | Score | Explanation | True | | | | False | ✔ | 5.00 | Correct. Try now to sort this out in different contexts, | Total | | 5.00 / 5.00 | | Question Explanation This is all about the fundamental difference between IRR and NPV. Question 2 (10 points) Ann Arbor is considering offering...

    Capital, Cash flow, Cost 1850  Words | 7  Pages

  • Irr vs Npv Techniques

    best option what to invest in have been developed. Purpose of this essay it to look at the modes of discounted cash flow valuation (DCF). Discounted cash flow valuation looks for present value, which has to be invested in order to obtain specific amount of money at the end of process. This valuation depends both on time value of money and opportunity cost of capital. Net present value (NPV) and internal rate of return (IRR) are the two methods of DCF valuation. The preferred one is NPV whereas it...

    Cash flow, Discounted cash flow, Internal rate of return 2311  Words | 10  Pages

  • Discounted Cash Flow (Dcf) Analysis

    contents SECTION 1: OVERVIEW DCF in theory and in practice Unlevered vs. levered DCF SECTION 2: MODELING THE DCF Modeling unlevered free cash flows Discounting to reflect stub year and mid-year adjustment Terminal value using growth in perpetuity approach Terminal value using exit multiple approach Calculating net debt Shares outstanding using the treasury stock method Modeling the weighted average cost of capital (WACC) Sensitivity analysis using data tables Modeling synergies *****************************...

    Cash flow, Corporate finance, Discounted cash flow 1400  Words | 7  Pages

  • Npv Assignment

    to invest or not the NPV technique can be used to compare the present value of returns and costs. If the NPV is negative it implies that costs exceed returns and hence it would not be advisable to invest in such projects. There are also other investment appraisal techniques that are employed apart from the NPV; these are the pay back method, accounting rate of return and internal rate of return method. Net present value (NPV) is generally considered as the most correct method for investment appraisal...

    Capital budgeting, Cash flow, Finance 1321  Words | 4  Pages

  • Assignment of Npv and Irr

    projects are worth pursuing. It is budget for major capital, or investment, expenditures. Many formal methods are used in capital budgeting, including the techniques such as 1. Accounting rate of return 2. Net present value 3. Profitability index 4. Internal rate of return 5. Modified internal rate of return 6. Equivalent annuity These methods use the incremental cash flows from each potential investment, or project. Techniques based on accounting earnings and accounting rules...

    Capital budgeting, Cash flow, Discounted cash flow 5255  Words | 16  Pages

  • Business Finance

    Please compare the advantages and disadvantages of the following investment rules: Net Present Value (NPV), Payback Period, Discounted Payback Period, Internal Rate of Return (IRR) and Profitability Index (PI). (You can start by considering the following questions for each investment rule: Does it use cash flows or accounting earnings? Does it consider all cash flows or not? Does it apply a proper discount rate? Whether the acceptance criteria are clear and reasonable? In what situation it can be...

    Capital budgeting, Cash flow, Discounted cash flow 1349  Words | 4  Pages

  • Cost of Capital Using Discounted Cash Flow Approach

    In finance, the discounted cash flow (DCF) analysis is a method of valuing a project, company or asset using the concepts of time value of money (Wikipedia, 2004). Three inputs are required to use the DCF, also called dividend-yield-plus-growth-rate approach, include: the current stock price, the current dividend, and the marginal investor’s expected dividend growth rate. The stock price and the dividend are east to obtain, but the expected growth rate is difficult to estimate (Ehrhardt & Brigham...

    Cash flow, Discounted cash flow, Internal rate of return 1052  Words | 3  Pages

  • Capital Budgeting

    and y= time. 1a) If the discount rate is 0%, what is the projects net present value? Year Cash Flow Discount Rate Discounted Cash Flow 0 -$400,000 0% -$400,000 1 $100,000 0% $100,000 2 $120,000 0% $120,000 3 $850,000 0% $850,000 Answer: The projects net present value is $670,000 If the discount rate is 2%, what is the projects net present value? Year Cash Flow Discount Rate Discounted Cash Flow 0 -$400,000 2% -$400,000 1 $100...

    Capital budgeting, Cash flow, Discounted cash flow 1147  Words | 4  Pages

  • Accounting Research: Advantages of Cash Flow

    Advantages of Cash flow * Cash flow is more “direct” as “profit” is highly dependent on accounting conventions and concepts/principles * Cash flow reporting satisfies the needs of all users better since cash flow is more direct with its messages. Some of the interested user parties are: * Creditors  -repayment of debts, overdue accounts * Management -cash flow reporting provides the type of information which decision should be taken re: relevant costs ( decision based on future cash...

    Balance sheet, Cash flow, Depreciation 1710  Words | 5  Pages

  • Capital Expenditure Valuation Methods

    Expenditure Valuation Methods The payback period is the time it takes for a project or investments cash outflows to be recovered by cash inflows generated from the same project or investment. It is a very simple and commonly used capital budgeting technique. The formula used to compute the payback period is initial investment divided by cash inflow per period. You generally want to choose the investment that provides the shortest payback period, because you will get you cash back and it can be put...

    Cash flow, Discounted cash flow, Interest 1141  Words | 3  Pages

  • npv

    Value (NPV) is the present value of the net cash inflows generated by a project including salvage value, if any, less the initial investment on the project,” (Irfanullah, Jan., 2013). It is preferred as one of the most reliable measures employed in capital budgeting since it accounts for the time value of money as it uses the discounted cash inflows. The net cash inflow is equivalent to the total cash inflow during a given period less the expenses incurred directly on generating the cash inflow....

    Cash flow, Depreciation, Internal rate of return 1019  Words | 7  Pages

  • Capital Budgeting

    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...

    Capital budgeting, Cash flow, Corporate finance 751  Words | 4  Pages

  • The Basics of Capital Budgeting: Evaluation Cash Flows

    Write Up: Mini Case ofChapter 10: The Basics of Capital Budgeting: Evaluation Cash Flows Oct 2, 2014 Executive Summary: We heritage $1 million from our grandfather, and we just received our master degree in MBA, and because we love to be our own boss and, we don not have the skills to trade on the market, we decided to purchase an established franchise in the fast-food area to make some investments. We chose two franchises: L, Lisa’s Soups, Salads, & Stuff which serves breakfast and lunch;...

    Capital budgeting, Cash flow, Internal rate of return 5627  Words | 10  Pages

  • Npv vs. Irr

    NPV Versus IRR W.L. Silber I. Our favorite project A has the following cash flows: -1000 0 0 1 0 2 +300 3 +600 4 +900 5 We know that if the cost of capital is 18 percent we reject the project because the net present value is negative: - 1000 + 300 600 900 + + = NPV 3 4 (1.18) (1.18) (1.18)5 - 1000 + 182.59 + 309.47 + 393.40 = -114.54 We also know that at a cost of capital of 8% we accept the project because the net present value is positive: - 1000 + 300 600 900...

    Cash, Cash flow, Discounted cash flow 974  Words | 5  Pages

  • Npv Chapter 9

    chapter is that only the NPV criterion can always provide the correct answer to both questions. For this reason, NPV is one of the two or three most important concepts in finance, and we will refer to it many times in the chapters ahead. When we do, keep two things in mind: (1) NPV is always just the difference between the market value of an asset or project and its cost, and (2) the financial manager acts in the shareholders’ best interests by identifying and taking positive NPV projects. Finally, we...

    Capital budgeting, Cash flow, Discounted cash flow 3710  Words | 16  Pages

  • Payback & NPV Examples

    B $ Cash Flow Present Value Cash Flow Present Value 0 1 (65,000) (65,000) (85,000) (85,000) 1 0.909 45,000 40,905 25,000 22,725 2 0.826 35,000 28,910 35,000 28,910 3 0.751 25,000 18,775 55,000 41,305 4 0.683 25,000 17,075 55,000 37,565 5 0.621 25,000 15,525 55,000 21,735 Total - 121,190 - 152,240 Net Present Value 56,190 67,240 Machine A has a faster payback period. If Riveau Yachts does not want to take risks such as cash flow problems,...

    Cash flow, Finance, Internal rate of return 867  Words | 5  Pages

  • Discounted Cash Flow

    in Tables 4.10 and 4.11 do not show free cash flow and financing requirements. These are calculated in Table 1. Note that free cash flow for 2005 is -$2.3 million. But dividends are $2.0, so the company will need 2.3 + 2.0 = $4.3 million in outside equity financing. Table 2 shows that the book value of equity is forecasted to grow from $40.71 million in 2004 to $63.31 million at the end of 2010. Table 3 works out earnings, dividends and free cash flow for 2011. By that time Reeby Sports should...

    Cash flow, Cash flow statement, Depreciation 848  Words | 5  Pages

  • Net Present Value Npv

    Examples Of Net Present Value (NPV), ROI and Payback Analysis Introduction Terms and Definitions Net Present Value - 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...

    Cash flow, Finance, Internal rate of return 831  Words | 6  Pages

  • Bonds: Bond and Cash Flow

    present value of the asset’s expected future cash flows. SECURITY VALUATION In general, the intrinsic value of an asset = the present value of the stream of expected cash flows discounted at an appropriate required rate of return. Can the intrinsic value of an asset differ from its market value? Ct = cash flow to be received at time t. k = the investor’s required rate of return. V = the intrinsic value of the asset. BOND VALUATION Discount the bond’s cash flows at the investor’s required rate of return...

    Bond, Bonds, Cash flow 1024  Words | 4  Pages

  • The Npv Rule Is the Best Investment Appraisal Method

    positive NPVs. We shall start this essay with an explanation of the NPV, then compare this method with other investment appraisal methods and finally try to define, based on the works of Tony Davies, Brian Pain, and Brealey/Myers/Allen, which method works best in order to define a good investments. So what is the Net Present Value? The NPV is today's value of the difference between cash inflows and outflows projected at future dates. When a firm makes profit it can either reinvest the cash or return...

    Capital budgeting, Cash flow, Discounted cash flow 2515  Words | 9  Pages

  • Net present value (NPV), payback period (PBP) and internal rate of return (IRR) approaches for a project evaluation

    MARCH 2012 C38FN 2012-2013 CORPORATE FINANCIAL THEORY WORDCOUNT: 2874 Abstract This essay will discuss the net present value (NPV), payback period (PBP) and internal rate of return (IRR) approaches for a project evaluation. It is often said that NPV is the best approach investment appraisal, which I why I will compare the strengths and weaknesses of NPV as well as the two others to se if the statement is actually true. Introduction To start of, the essay will attempt to explain the...

    Capital budgeting, Cash flow, Discounted cash flow 2945  Words | 11  Pages

  • Discounted Cash Flow

    discounted cash flow (DCF In finance, discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset using the concepts of the time value of money. All future cash flows are estimated and discounted to give their present values (PVs) — the sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value or price of the cash flows in question. Using DCF analysis to compute the NPV takes as input cash flows and a discount...

    Basic financial concepts, Cash flow, Discounted cash flow 4436  Words | 13  Pages

  • Portfolio Management

    their budgeting process. First, when making the decision, cash flows should be the main concern instead of the accounting income. Second, any cash flows will need to be discounted by the opportunity costs. Opportunity costs are the amount of cash flows that will lose by undertaking the project under analysis. Third, according to the time value of money, the cash flows received earlier is preferable to firm. In other words, the timing of cash flow is vital for any projects to have positive outcome. Fourth...

    Cash flow, Discounted cash flow, Internal rate of return 1160  Words | 4  Pages

  • Investment Appraisal

    CONTENTS Introduction…………………………………………………………………….………2 Define Capital Investment Appraisal…………………………….………………….…2 Discounted cash flow methods……….………………………….………………….…4 Explanation of NPV…………………… ...................................................................…4 Explanation of IRR…………….……………………….…….……..…………………5 Advantages and disadvantages...……..……………………………………….……….5 Project calculations..................................................................................

    Capital budgeting, Cash flow, Discounted cash flow 826  Words | 5  Pages

  • Capital Budgeting

    Question a What is capital budgeting? Are there any similarities between a firm’s capital budgeting decisions and an individual’s investment decisions? Capital budgeting is the process of analyzing potential additions to fixed assets. Capital budgeting is very important to firm’s future because of the fixed asset investment decisions chart a company’s course for the future. The firm’s capital budgeting process is very much same as those of individual’s investment decisions. There are some steps...

    Capital budgeting, Cash flow, Discounted cash flow 1749  Words | 6  Pages

  • Busn379 Week 6 Course Project Part 2

    special component significantly. The anticipated cash flows for the project are as follows: Year 1 $1,100,000 Year 2 $1,450,000 Year 3 $1,300,000 Year 4 $950,000 You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is $3,000,000. 1. What is the project’s IRR? (10 pts) Using this online IRR Calculation Tool http://finance.thinkanddone...

    Cash flow, Corporate finance, Interest 1343  Words | 6  Pages

  • Chapter 7— Net Present Value and Other Investment

    Value and Other Investment Question 1 : List the methods that a firm can use to evaluate a potential investment. There are discounted and non-discounted cash-flow capital budgeting criteria to evaluate proposed investments. They are 1) Net present value: NPV is a discounted cash flow technique, which is the difference between an investment’s market value and its cost. NPV = Present value of cash inflow- Present value of cash outflow The investment should be accepted if the...

    Capital budgeting, Cash flow, Discounted cash flow 1143  Words | 5  Pages

  • Capital Structure

    Financial decision-makers must find answers to important questions, including; • What long-term investments should the firm undertake (capital budgeting) and how will investment and finance decisions affect the firm's value (valuation)? • How can cash be raised for the required investments? This is known as the ‘financing decision' (cost of capital, capital structure and leasing). • How will the firm manage its day-to-day cash and financial affairs (short-term financing and net working capital)? ...

    Capital budgeting, Cash flow, Discounted cash flow 1969  Words | 6  Pages

  • Laurentian Bakeries

    the NPV approach to investment appraisal and compare the strengths and weaknesses of the NPV approach to two other commonly used approaches. (30 marks) This first section of this paper will provide a brief explanation on theoretical rationale for the net present value (NPV) method of investment appraisal and then compare its strengths and weaknesses to two alternative methods of investment appraisal, those of internal rate of return (IRR) and pay-back. Theoretical rationale for the NPV approach ...

    Cash flow, Discounted cash flow, Interest 1369  Words | 5  Pages

  • Net Present Value and Initial Cash Outlay

    semiannually. The market price of the bond is $1,000, equal to its par value. a. What is the payback period for this bond? b. With such a long payback period, is the bond a bad investment? c. What is the discounted payback period for the bond assuming its 4% coupon rate is the required return? What general principle does this example illustrate regarding a project’s life, its discounted payback period, and its NPV? A8-1. a. Payback on this bond is 25 years. You pay $1,000. You receive $40 a...

    Bond, Cash flow, Coca-Cola 755  Words | 3  Pages

  • Cash Flow

    RUNNING HEAD: CASH FLOW Cash Flow Week 7/ Assignment Beverly Clarkson December 21, 2014 Daniel Carraher RUNNING HEAD: CASH FLOW ...

    Balance sheet, Cash flow, Cash flow statement 956  Words | 7  Pages

  • investment appraisal

    certain methods are used known as capital investment appraisal methods, also referred to a capital budgeting practices. These are the tools for decision making and have been defined by Verbeeten (2006) as techniques used to evaluate and select an investment project. There are a number of techniques of capital investment appraisal. Some main techniques used are: Payback (PB), accounting rate of return (ARR), internal rate of return (IRR), and Net present value (NPV). Some of these methods are simple...

    Capital budgeting, Cash flow, Discounted cash flow 2162  Words | 7  Pages

  • Understanding Cash Flows

    Understanding Cash Flows and Capital-Budgeting DecisionsIndiana Wesleyan University FIN-310-01A Dr. Sam OjoOctober 19, 2014 Understanding Cash Flows and Capital-Budgeting Decisions When evaluating cash flows for determining whether or not to pursue constructing a building to manufacture cupcakes there are several things to consider. The most important would be looking at a Grammy’s incremental after tax cash flow. Then one needs to determine the projects initial outlay, the differential cash flows over...

    Cash flow, Depreciation, Discounted cash flow 992  Words | 2  Pages

  • Discounted Cash Flow Valuation

    CHAPTER 4 DISCOUNTED CASH FLOW VALUATION Solutions to Questions and Problems 10. To find the future value with continuous compounding, we use the equation: FV = PVeRt a. b. c. d. FV = $1,000e.12(5) FV = $1,000e.10(3) FV = $1,000e.05(10) FV = $1,000e.07(8) = $1,822.12 = $1,349.86 = $1,648.72 = $1,750.67 23. We need to find the annuity payment in retirement. Our retirement savings ends at the same time the retirement withdrawals begin, so the PV of the retirement withdrawals will be the FV of...

    Cash flow, Discounted cash flow, Internal rate of return 9031  Words | 23  Pages

  • Business Finance Written Assignment

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    Capital budgeting, Cash flow, Internal rate of return 992  Words | 6  Pages

  • Angie Watts 1

    depreciation method. The project has no salvage value. It is estimated that the project will generate additional revenues of $1.2 million per year before tax and has additional annual costs of $600,000. The Marginal Tax rate is 35%. Wheel has just paid a dividend of $2.50 per share. The dividends are expected to grow at a constant rate of six percent per year forever. If the stock is currently selling for $50 per share with a 10% flotation cost, what is the cost of new equity for the firm? What are the...

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  • ACC 560 week 9 Assignment

    2011). Methods for Evaluating the Capital Investment Johnson Controls, Inc. giving money to something to help it grows are figured out the worth, amount, or quality of by different ways of doing things depending upon the nature of risk and projects. There are four most popular traditional methods to measuring the effectiveness of the investment. These methods are; accounting rate of return (ARR or ROCE or ROI), payback or discounted payback, discounted cash flow or net present value (NPV), and internal...

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