recession‚ and as a result interest rates and money costs generally are relatively low. The WACC for two mutually exclusive projects that are being considered is 8%. Project S has an IRR of 20% while Project L ’s IRR is 15%. The projects have the same NPV at the 8% current WACC. However‚ you believe that the economy is about to recover‚ and money costs and thus your WACC will also increase. You also think that the projects will not be funded until the WACC has increased‚ and their cash flows will not
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recommendation would be the only scenario where Ocean Carriers sees a positive net present value of the investment—the investment would yield a NPV after 25 years of $977‚267. Scrapping at any year before or after 25 years would be non-optimal. Scrapping before year 20 would result in a negative NPV and scrapping after year 25 would not yield as high as the year 25 NPV. Thus‚ Ocean Carriers should invest in the new ship only if it plans on commissioning the ship for a minimum of 20 years. Assumptions
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share: Using these projections‚ calculate the projected annual production volume: Based on these estimates‚ it will be 2010 before current capacity is exceeded and an expansion becomes necessary. 19-3. Under the assumption that Ideko market share will increase by 0.5% per year‚ you determine that the plant will require an expansion in 2010. The cost of this expansion will be $15 million. Assuming the financing of the expansion will be delayed accordingly‚ calculate the projected interest payments
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called Zinser 351 in order to save the declined sales and increase its competitive force. In deciding whether or not to invest Zinser 351‚ it is important to get the NPV and the payback period. To get the NPV and the payback period‚ we firstly need to forecast the future cash flows that the new machine will generate. We found the ten-year NPV to be $3‚171‚551 based on the FCFs that we forecast. Also‚ we use the payback period to analyze the acceptance of this project. We found that the discounted payback
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Financial managers must be particularly aware of the timing of cash flows (the time value of money ’) and associated risks. This financial decision-maker will use projected cash flows to determine whether acquiring Corporation A or Corporation B (i.e. NPV and IRR) is the best choice. If acquisition does not generate positive cash flow‚ the company is effectively providing finance for the acquired corporation. Capital Budgeting Decisions Many business opportunities involve sacrificing current earnings
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|Case 9 | |Performance Boating Products‚ Inc. | Performance Boating Products‚ Inc I. Situation Analysis • Performance Boating Products‚ Inc (PBP) manufactures attachments for boat hulls and motors that aid watercraft in reducing drag and maintaining ‘plane’. • PBP attachments can be integrated as part of new
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B Project C Year 1 70‚ 000 130‚ 000 75‚ 000 Year 2 70‚ 000 130‚ 000 60‚ 000 −100‚ 000 −200‚ 000 −100‚ 000 Suppose the relevant discount rate is 12% per annum. (a) Compute the profitability index for each of the three projects. (b) Compute the NPV for each of the three projects. (c) Suppose these three projects are independent. Which project(s) should Amaro accept‚ based on the profitability index rule? (d) Suppose these three projects are mutually exclusive. Which project(s) should Amaro accept
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capital and investment to company expenditure which facilitates the determination of the concerned firm ’s investments. Doubtlessly‚ firms will benefit from modern financial technology. The most common ways of investment appraisal are payback‚ IRR and NPV methods; each of them has its own strengths and weaknesses from a perspective of decision making. In this essay‚ the background and methods of capital investment appraisal will be discussed‚ and then will argue the comparison of different methods.
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level. When the cost of capital is highly estimated‚ the NPV of projects will be smaller‚ which means that the company may reject projects with positive NPV or even extremely profitable project. And only a few projects would generate an IRR greater than the cost of capital‚ which also means the company might miss profitable projects. Conversely‚ when the cost of capital is underestimated‚ more projects will have positive or large NPV and generate an IRR greater than the cost of capital‚ the
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USEC Case Case Analysis In response to the Energy Policy Act of 1992‚ the United States Enrichment Corporation (USEC) was created to privatize uranium enrichment for civilian use (Wikipedia). In 1998‚ USEC went public‚ and has been operating as a leading global energy supplier of enriched uranium fuel for commercial nuclear power plants. The following report details USEC’s opportunity to embark on a massive capital-expenditure project known as the American Centrifuge Project (ACP). Currently‚
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