flow (DCF) methods: the net present value (NPV) method and the internal-rate-of-return (IRR) method 4. Use and evaluate the payback method (PB) 5. Use and evaluate the accounting rate-of-return (ARR) method 6. Income taxes and capital expenditure analysis 7. Post-completion audits Capital Budgeting • Capital budgeting involves investment decisions in projects that spans multiple years. – A good investment decision • One that raises the current market value of the firm’s equity‚ thereby
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Khasan | UBU Number: | 11033772 | Lecturer: | Cyril Antony | Module Name: | Decision Support Systems | Batch # | 410 | | | \ Report 1. What is the Net Present Value of the garage’s cash flow with and without the platform? Net present Value of the Garage’s cash flow with Platform: NPV = £ 173‚614 Net present Value of the Garage’s cash flow with Platform: NPV = £ 38‚047 i. Should the garage manager buy the platform? Garage manager should buy the platform because‚ the
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Calculate the net present value for Project A and Project B using a risk discount rate of 10% per annum. Using net present value as a criterion‚ which project is preferable? (b) Find the internal rates of return for Project A and Project B‚ and hence determine which project is more favourable using this criterion. 1 Solution (a) For Project A‚ the net present value (in $000) is: NPVA (0.10) = −150 − 250v − 250v 2 + 1000v3 = 167.4 For Project B‚ the net present value (in $000) is:
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As of 2010‚ stand alone Investment banks are numerous. 2. We compute the profitability index of a capital-budgeting proposal by Initial outlay = $1‚748.80 dividing the present value of the annual after-tax cash flows by the cost of the project. Explanation: The profitability index is calculated as Net Present Value / Initial Outlay. 3. Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500‚000 and has a NPV of $150‚000. The
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Answer all questions Question 1 An industrial product may be manufactured by two methods of production. Using Method X‚ fixed costs are RM6‚540‚000 per period and variable costs are RM57 per unit. Using Method Y‚ fixed costs are RM7‚800‚000 per period and variable costs are RM45 per unit. a) Calculate the level of output per period for which the total costs are the same. (3 marks) b) Calculate the total cost per period for Method X at this output. (2 marks) c) State
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monitoring project review Question 3 2 / 2 pts Which capital budgeting technique is preferred in all major industrialized countries? Which capital budgeting technique is preferred in all major industrialized countries? net present value internal rate of return payback period none of the above Correct! Question 4 2 / 2 pts Why is it believed that Japanese companies prefer the payback period over the discounted cash flow methods for evaluating
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used as being the Net Present value (NPV) method‚ the Internal Rate of Return (IRR) method‚ the Payback method‚ and the Accounting Rate of Return (ARR) method. Conversely‚ Brealey‚ Myers and Allen (2011) proposes that the NPV and IRR methods are considered prestige compared to the ARR and the Payback Methods‚ as they take into account the time value of money. Thus‚ the following project evaluation will focus on using the NPV and IRR methods. NPV Method: The Net Present Value method discounts future
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decisions. The term capital budgeting describes the process for evaluating and selecting investment projects. Often‚ capital expenditures can be very large‚ such as building a new plant or launching a new product line. These endeavors can create enormous value for shareholders‚ but they can also bankrupt the company. In this section‚ you’ll learn how financial managers decide which investment opportunities to pursue. P Chapter 10 covers the capital budgeting tools that financial managers and analysts use
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Capital Rationing Capital rationing means that there is not sufficient finance (capital) available to support all the projects proposed in an organisation. In an ideal world any project which can earn a positive net present value or earn an internal rate of return greater than the cost of capital should be able to find a source of finance because there are rewards to the providers of capital. However‚ the world is not ideal and there may be restrictions on capital for any of the following reasons:
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Chapter One Basic Areas of Finance: 1. Corporate Finance = Business Finance 2. Investments a. Work with financial assets such as stocks and bonds. b. Value of financial assets‚ risk verses return and asset allocation. c. Job opportunities. 3. Financial Institutions a. Companies that specialize in financial matters. i. Banks – Credit unions‚ savings‚ and loans. ii. Insurance Companies iii. Brokerage Firms b. Job Opportunities. 4. International Finance a. An area of specialization within each of the
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