RES 9776 – Spring 2015 Real Estate Finance Professor: Stephen J. Pearlman Case Study - Angus Cartwright III Joonho Kim Yan Chen Qinqin (Renee) Yang Jae Paik Contents I. Case Overview 2 II. Analysis and Assumptions 2 III. Financial Analysis 4 IV. Recommendations Reasoning 5 Appendix 6 Exhibit 5 Exhibit 8 I. Case Overview Angus Cartwright III‚ an investment advisor‚ was asked to provide investment advisory services for two clients
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net present value to be zero. The IRR would be calculated for each investment opportunity. The decision rule is to accept the projects with the highest internal rates of return‚ so long as those rates are at least equal to the firm’s cost of capital. If IRR is greater than cost of capital then one should accept the project. Clark has got IRR which is more than cost of capital. Hence one can accept the project. Overall Clark project acceptable as its NPV and IRR is
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Capital Budgeting Meaning – Capital budgeting (or investment appraisal) is the planning process used to determine whether an organization’s long term investments such as new machinery‚ replacement machinery‚ new plants‚ new products‚ and research development projects are worth the funding of cash through the firm’s capitalization structure (debt‚ equity or retained earnings). It is the process of allocating resources for major capital‚ or investment‚ expenditures. One of the primary goals of
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Chapter 9 Cost of Capital 1. What is the WACC? a. Weighted Average Cost of Capital- most firms employ different types of capital‚ and because of their differences in risk‚ the difference securities have different required rates of return. Typically=debt‚ preferred stock and common equity. 2. What precautions must we take when measuring the WACC to use for capital budgeting decisions (future investment)? b. The company’s current and recent past book and market value structures
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holders at serious odds. Equity holders want to take massive risks to try and save firm because they have no skin left in the game. Chapter 17: * Only standard DCF (like from midterm) * will not be tested on Why can IRR be misleading? * Multiple IRRs * Timing problem * Scale problem When do we prefer preferred over common stock? * Bankruptcy * Dividends Agency Costs: * Example: stockholders vs bond-holders during bankruptcy * Agent acts in interest
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each projects payback period‚ Discounted payback period‚ net present value (NPV)‚ internal rate of return(IRR) and Profitability Index b. Which project or projects should be accepted if they are independent? c. Which project or projects should be accepted if they are mutually exclusive? d. How might a change in the cost of capital produce a conflict between the NPV and IRR ranking of these two projects? Would this conflict exist if k were 5%? e. Why does the conflict exist
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year R0 are summed up a negative cash flow.[2] Given the (period‚ cash flow) pairs (‚ ) where is the total number of periods‚ the net present value is given by: IRR=a+[NPVa/(NPVa-NPVb)]*(b-a) 其中：a、b为折现率，a>b； NPVa为折现率为a时，所计算得出的净现值，一定为正数； NPVb为折现率为b时，所计算得出的净现值，一定为负数； 插值法计算。 举个例子，假设IRR=5%，算得净现值=-10；假设IRR=6%，算得净现值=10，则 IRR=[0-(-10)]/[10-(-10)]*(6%-5%)=5.5%
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ACCT505 Part B Capital Budgeting problem Clark Paints Data: Cost of new equipment $200‚000 Expected life of equipment in years 5 Disposal value in 5 years $40‚000 Life production - number of cans 5‚500‚000 Annual production or purchase needs 1‚100‚000 Initial training costs 0 Number of workers needed 3 Annual hours to be worked per employee 2‚000 Earnings per hour for employees $12
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ABSTRACT This report describes capital budgeting techniques such as NPV (The NPV of an investment is the difference between its market value and its cost‚ IRR (The IRR is the discount rate that makes the estimated NPV of an investment equal to zero. PAYBACK (The payback period is the length of time until the sum of an investment’s cash flows equals its cost)‚ discounted payback period (The discounted payback period is the length of time until the sum of an investment’s discounted cash flows equals
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Government and For Other Purposes‚” took effect on 26 January 2003‚ while its Implementing Rules and Regulations Part A (IRR-A) took effect on 8 October 2003; WHEREAS‚ the Government Procurement Policy Board (GPPB)‚ under Section 63 of the IRR-A of RA 9184‚ is mandated to formulate and amend public procurement policies‚ rules and regulations‚ and amend‚ whenever necessary‚ the IRR-A of RA 9184; WHEREAS‚ during the Philippines Development Forum held last March 2008‚ the Government of the Philippines
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