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(without making any calculations)? I would estimate the incremental cash flows over the economic life of the new machine, taking into consideration the after-tax salvage values of the old and new machine respectively. Changes in net working capital would be figured in as well. For the terminal year, we would assume that the net working capital is recovered and treat it as a cash inflow. 2. Explain the relevance of incremental cash flows, sunk costs, and incidental costs in the context of this...
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Open Documentfinancial standpoint? • To compute the best option, we need to compare the net present value of the 3 options available to Ben: • Option 1: To stay at East Coast Yachts: Annual Salary Tax Rate Salary after Tax deduction Discount Rate (r) Growth Rate (g) PV of cash flows for 35 years o Growing Annuity: PV = C [1-(1+g/1+r)T/ (r-g)] $50,000 26% $37,000 6.50% 3% $728,896 The above PV has been calculated by formula for Present Value of • Option 2: Attending an MBA program at Ritter College of...
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Open Documentof action Mr. Navallez should take, along with calculation to support the recommended course of action. Capital budget techniques Several techniques can be used to analyze an opportunity to invest in capital. Net Present Value (NPV) allows decision makers to analyze the present value (cost) of a capital investment and determine if the investment will compensate the cash outflow used for capital investment by an excess of the desired rate of return. Management “wants to know the rate of return...
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Open Documentaccepted or rejected. The considerations for acceptance or rejection of a project or slate of projects are the net present value, internal rate of return, hurdle rate, and profitability index. Net Present Value The first consideration is a net present value evaluation for the project. This calculation evaluates a future stream of benefits and expenses by converting them to present values. A discount rate is used to discounted future benefits and the total sum of discounted costs is subtracted form...
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Open Documentthe information is so readily available. II. internal rate of return because the results are easy to communicate and understand. III. discounted payback because of its simplicity. IV. net present value because it is considered by many to be the best method of analysis. | | | Student Response | Value | A. | I and III only | | B. | II and III only | | C. | I, II, and IV only | 100% | D. | II, III, and IV only | | E. | I, II, III, and IV | | | | | 2. | | ...
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Open Documentunfavourable direct labour efficiency variance 5 Question 3.1 Question 3.2 Question 3.3 Question 3.4 Question 3.5 Cost-Volume-Profit Analysis Calculate the total marginal income and net profit/loss if all the tables are sold Calculate the margin of safety (in units) Calculate the break-even value using the marginal income ratio if the company spends an additional R185 650 on advertising Calculate the selling price per unit that will enable the company to break-even if 720 units are...
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Open DocumentCapital 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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Open DocumentDiscounted Cash Flow Homework Problems Please post the answers (and show your work) in the assignments section by midnight the last day of the week assigned. 1. Calculate the future value of 1,535 invested today for 8 years at 6 percent. (5 points) $1535 * 1.5938 = $2,446 2. What is the total present value of the following cash stream, discounted at 8 percent? (5 points) |Year |Amount |Rate |PV | |1 | $ 400.00 ...
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Open Documentthe company as a whole, that shows us how important the incremental cash flow is and that interests the company. These incremental cash flows are the marginal benefits from the project and since the firm accepts the project they are the increased value to the firm. 2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings? 21,000,000 36,000,000 42,000,000 24,000,000 15,600,000 Project Revenue ...
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Open Documentcapital budgeting analysis compares cash inflows and cash outflows instead of net income calculated using the accrual basis. Capital projects are typically evaluated using quantitative analysis and qualitative information. There are two capital budget evaluation processes that take into consideration the time value of money Net Present Value (NPV) and the Internal Rate of Return (IRR) (Edmonds, 2007). Time value of money is necessary when comparing possible business investments that have different...
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