success. As of 1992‚ they attained a gross return on assets of 9.3 percent. In the eyes of Henry Hubbard‚ the Chief Financial Officer‚ gross return on assets for Enager should be reaching levels of above 12 percent for all divisions of the company. In 1992 the company changed the objectives and performance evaluations of each division from profit centers to investment centers. This was done to better able to relate each division’s profit to the assets the division used to generate its profits; at least
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ones‚ arbitral tribunals are frequently called on to perform a similar exercise: to determine a lump-sum damages award to compensate for the loss of an income-producing asset. Both the arbitrators’ decision and the industry’s evaluation entail converting projected future net revenues of an incomegenerating property to present value. However‚ the details of how to make that conversion remain arcane to the legal non-specialist who nonetheless must advocate or adjudicate a claim based on such calculations
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Capital Budgeting Scenario Proposal A: New Factory A company wants to build a new factory for increased capacity. Using the net present value (NPV) method of capital budgeting‚ determine the proposal’s appropriateness and economic viability with the following information: • Building a new factory will increase capacity by 30%. • The current capacity is $10 million of sales with a 5% profit margin. • The factory costs $10 million to build. • The new capacity will meet the company’s needs for
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of the cash flows? Payback Question 3 A(n) ____ is the return on the best alternative use of an asset‚ the highest return that will not be earned if funds are not invested in a particular project. opportunity cost Question 4 Tapley Acquisition Inc. is considering the purchase of Target Company. The acquisition would require an initial investment of $190‚000‚ but Tapley ’s after-tax net cash flows would increase by $30‚000 per year and remain at this new level forever. Assume the required
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Chapter 2- Fundamental principles of value creation Question 1- What was the reason the fast growing company Walgreen and the significantly slower growing company Wrigley‚ Between 1968 and 2007 had nearly the same shareholder return? For example‚ earnings growth alone can’t explain why investors in drugstore chain Walgreens‚ with sales of $54 billion in 2007‚ and global chewinggum maker Wm. Wrigley Jr. Company‚ with sales of $5 billion the same year‚ earned similar shareholder returns between
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Harris Case Analysis Objective: Should Harris invest into the shrimp processing plant? Issues: 1. Will this processing plant have a value today that is greater than or equal to the cost today? -If the NPV of the plant is greater than zero‚ then we should move forward with the investment. NPV Analysis: Value> Cost Value: PV: Value right now PV= forecast of future cash returns (FCR) -We used FCR to determine how much cash we get back and can deem the plan a good investment if we can
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PART A 1. If capital expenditure (on depreciable assets) is incorrectly treated as revenue expenditure‚ the total expenses in the year the error is made will be overstated√. This will mean that profit will be understated by the difference between the cost of the asset(s) purchased and the amount of depreciation which should have been charged√. This will lead to net assets being understated√ by the same amount as profit. In the following year‚ profit will be overstated√ as the charge which
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Executive Summary MRC‚ Inc. is a Cleveland based manufacturing company specialized in power brake systems for trucks‚ buses‚ and automobiles; industrial furnaces and heat treating equipment; and automobile‚ truck and bus frames. As till 1957 most of MRC’s sales were made to less than a dozen large companies in the automotive industry‚ it was exposed to the risk inherent in selling to a few customers in a very cyclical and competitive market. Archibald Brinton‚ President of MRC‚ Inc.‚ begun an
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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
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When an individual is trying to decide whether or not to lease or buy‚ he or she needs to know the purchase cost‚ the lease cost‚ as well as the interest rate of a loan that will be used to purchase the item. The residual value of the item also must be known up front to help determine if leasing is the better option. When determining whether to lease or buy‚ the cash flow for both should be compared so the best decision can be made. Below is a chart on lease vs buy. (www.smartcomputing.com; Retrieved
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