| Week 4 | | | | | | | | | Capital Budgeting Problem | | | | | | | | | | | | | | | | | Data: | | | | | | | | Initial investment | $80‚000 | | | | | | | Increase in working capital | $20‚000 | | | | | | | Length of investment | 6 | | | | | | | Salvage value | $8‚000 | | | | | | | Before tax annual cash inflows | $28‚500 | | | | | | | Tax rate | 35% | | | | | | | Discount rate | 14% | | | | | | | | |
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1. A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%‚ and the constant growth rate is g = 4.0%. What is the current stock price? a. $23.11 b. $23.70 c. $24.31 d. $24.93 e. $25.57 2. If D1 = $1.25‚ g (which is constant) = 4.7%‚ and P0 = $26.00‚ what is the stock’s expected dividend yield for the coming year? a. 4.12% b. 4.34% c. 4.57% d. 4.81% e. 5.05% 3. If D0 = $1.75‚ g (which is constant) = 3.6%‚ and P0 = $32.00‚ what is
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To: Michael Campbell‚ General Manager‚ Phuket Beach Hotel From: Albert‚ Andy‚ Becca‚ Chris‚ & Derek Consulting Date: June 14‚ 2011 Re: Valuation of Potential Karaoke Pub Projects Thank you for retaining AaBCD Consulting in the valuation of your future capital improvement project. There are two mutually exclusive capital improvement projects under consideration: lease under-utilized space to an unrelated third party‚ Planet Karaoke Pub‚ or invest greater capital to open and manage your own
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Topic 1: Financial Markets 1. You are among the OTC market makers in the stock of Bio-Engineering‚ Inc. and quote a bid of 102 1/4 and an ask of 102 1/2. Suppose that you have a zero inventory. (a) On Day 1 you receive market buy orders for 10‚000 shares and market sell orders for 4‚000 shares. How much do you earn on the 4‚000 shares that you bought and sold? What is the value of your inventory at the end of the day? (Hints: It is possible to have negative inventory. Further‚ there is more than
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Lesson Plan on Capital Budgeting Capital Budgeting - process of deciding whether or not to commit resources to projects whose costs and benefits are spread over several time periods. Characteristics of a Capital Investment Decision: 1. Substantial amount of funds are required in capital projects. 2. Because of the length of time span by a capital investment decision‚ the element of uncertainty becomes more critical. 3. The effect of managerial errors will be difficult to reverse
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restriction in the form of regulation from Japanese government. There are two available options for Walt Disney‚ (7) creating a yen liability through loan from a Japanese bank‚ or (8) an ECU/yen swap proposed by Goldman Sachs. After calculating the IRR of each
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1) How much importance should be given to the energy cost situation? Michael Burton’s proposal to expand into new energy efficient products is justified by increasing interest in the public and private sectors to reduce energy costs. At the highest level of government‚ the Obama administration has tied the US economy’s energy policy with its future success and competitiveness with other global powers. In a speech on June 2009‚ President Obama specifically mentions the Energy Department’s plans to
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Conclusions Selected References PART TWO: THE INVESTMENT DECISION 2. 2.1 2.2 2.3 2.4 2.5 Capital Budgeting Under Conditions of Certainty The Role of Capital Budgeting Liquidity‚ Profitability and Present Value The Internal Rate of Return (IRR) The Inadequacies of IRR and the Case for NPV Summary and Conclusions 8 8 8 10 11 13 15 18 21 24 25 27 27 28 28 34 36 37 what‘s missing in this equation? Please click the advert You could be one of our future talents maeRsK inteRnationaL teChnoLogY &
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Introduction This case study highlights Whirlpool Corporation - Europe plans to evaluate project Atlantic‚ with emphasis on capital budgeting. Project Atlantic is an investment in an enterprise resource planning (ERP) system that would streamline business processes across all European regions and reorganize the information flow throughout the company. The objective of the case is to determine whether or not Whirlpool Corporation should adopt a planned ERP project in Europe – project Atlantic
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FIN370 WK3 Solutions Guide: 1. We focus on free cash flows rather than accounting profits because these are the flows that the firm receives and can reinvest. Only by examining cash flows are we able to correctly analyze the timing of the benefit or cost. Also‚ we are only interested in these cash flows on an after tax basis as only those flows are available to the shareholder. In addition‚ it is only the incremental cash flows that interest us‚ because‚ looking at the project from the point
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