Budgeting techniques enable the manager to make such decisions. The first question that comes to mind is‚ when making a capital investment decision‚ should we focus on cash flows or accounting profits. The book is stating “In measuring wealth or value‚ we will use cash flows‚ not accounting profits‚ as our measurement tool. That is‚ we will be concerned with when the money hits our hand‚ when we can invest it and start earning interest on it‚ and when we can give it back to the shareholders in the
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Owing to the uneven capital structures between 2008 and 2012‚ it will be prudent not to deploy WACC to value the target but value the target using APV. Additionally‚ WACC computation might be difficult to use since an adjustment discount rate each year the capital structures change. Assuming that the project will de-lever after 2012‚ WACC valuation will be applied to determine the terminal value. factors the interest tax shields in its calculation and in the case of this acquisition‚ the Interest
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Part A (a) The present value of all future cash flows is a factor in the calculation of Value-in-Use (AASB 136 (30)). The Telstra Ltd management makes assumptions that future operating performance (or cash flow) of the asset can be appropriately predicted based on historical performances and expected future performances (Telstra‚ p94). This complies with AASB 136 (33)‚ (34) and (35). Future net cash flows have to be discount back to present value (AASB 136 (56)). The assumption that Telstra has
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which has been mandated to develop an integrated information system. The objective is to be able to harness computer power to make information available to the right person in the company at the right time at the most cost efficient manner. Your present assignment is to determine the proper grouping of the applications. What applications are not appropriately grouped? a. Sales‚ accounts receivable‚ salesman’s commission‚ cash receipts‚ marketing equipment modules b. Production planning and scheduling
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non-factor in determining the profitability of the Super Project. Simply adding the cost of erosion to Jell-O’s sales ought to be sufficient in rectifying the costs of switching the machine’s function. Before we could begin to calculate the net present values of the base case and the fully allocated costs method it was necessary to determine an appropriate discount rate. In order to do this we calculated the weighted average cost of capital by determining that General Foods Corporation return on
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increases by a specific multiple‚ the total dollar value of the shares remains the same compared to pre-split amounts‚ because the split did not add any real value. A stock split is usually done by companies that have seen their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. The primary motive is to make shares seem more affordable to small investors even though the underlying value of the company has not changed. A stock
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of using capital for a particular investment as oppose to the alternative investment which has similar systematic risk. It is extremely important since it is used in evaluating whether a project is feasible or not in the net present value (NPV) analysis‚ or in assessing the value of an asset. WACC (weighted average cost of capital) is the proportional average of each category of capital inside a firm (common shares‚ preferred shares‚ bonds and any other long-term debt). WACC is also called required
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Michelle (Shu Yu) Chen FNCE 174 May 18th‚ 2015 Harmonic Hearing Case Study 1.) Please refer to the spreadsheet for the FCF model. Under the debt scenario‚ the terminal value of the company is $45‚289‚826. Under the equity scenario‚ the terminal value of the company is $106‚237‚503.48. For all debt‚ there will be a $13M cash outflow to buy back the building‚ a $7.25 M cash outflow to pay back the mortgage to Collin Bank of Commerce and Bank of McKinney‚ and a $500k purchase of equipment. For all
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decisions about what assets or products to invest in‚ how to manage cash and how to raise funds for growth. Topics include the role of corporate finance‚ cash flow and financial statement‚ time value of money‚ discounted cash flow valuation‚ interest rate and bond valuation‚ stock valuation‚ net present value‚ and making capital investment decisions. Text Book Stephen A. Ross‚ Randolph W. Westerfield‚ and Bradford D. Jordan‚ Fundamentals of Corporate Finance‚ Seventh edition‚ Irwin McGraw-Hill
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be looking at a Grammy’s incremental after tax cash flow. Then one needs to determine the projects initial outlay‚ the differential cash flows over the project’s life‚ and the terminal cash flow. Also what needs to be looked at is what is the net present value and its internal rate of return. When making the capital-budgeting decision for constructing a building to manufacture cupcakes one should focus on cash flows rather than accounting profits. Accounting profits cannot be reinvested. They are
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