Net Present Value And Materials Price Variance

Net Present Value and Materials Price Variance
1. The direct materials quantity standard should A) exclude unavoidable waste. B) exclude quality considerations. C) allow for normal spoilage. D)
always be expressed as an ideal standard.
Use the following to answer questions 2–4:
Stiner Company has a materials price standard of $2.00 per pound. Five thousand pounds of materials were purchased at $2.20 a pound. The actual
quantity of materials used was 5,000 pounds, although the standard quantity allowed for the output was 4,500 pounds.
2. Stiner Company's materials price variance is A) $100 U. B) $1,000 U. C) $900 U. D) $1,000 F.
= (AQ Г— AP) – (AQ Г— SP)
= (5,000 Г— $2.2)–(5,000 Г— $2)
= $1,000 U
3. Stiner Company's ... Show more content on Helpwriting.net ...
The profitability index is computed by dividing the A) total cash flows by the initial investment. B) present value of cash flows by the initial
investment. C) initial investment by the total cash flows. D) initial investment by the present value of cash flows.
18. To avoid rejecting projects that actually should be accepted,
1. intangible benefits should be ignored. 2. conservative estimates of the intangible benefits' value should be incorporated into the NPV calculation. 3.
calculate net present value ignoring intangible benefits and then, if the NPV is negative, estimate whether the intangible benefits are worth at least the
amount of the negative NPV. A) 1 B) 2 C) 3 D) both 2 and 3 are correct
19. The standard direct materials quantity does not include allowances for A) unavoidable waste. B) normal spoilage C) unexpected spoilage D) all of

the above are included.
20. A project with a zero net present value indicates that it is A) unacceptable B) profitable C) acceptable D) going to have an acceptable cash payback
period.
21. The capital budget for the year is approved by a company's A) board of directors B) capital budgeting committee C) officers
... Get more on HelpWriting.net ...

Essay on Net Present Value and Moderate Keywords
Chapter 6 | Capacity Planning | | TRUE/FALSE 1. Capacity is the maximum rate of output of a process. Answer: True Reference: Introduction
Difficulty: Easy Keywords: capacity, maximum output rate 2. Capacity decisions should be made separate from strategic decisions. Answer: False
Reference: Introduction Difficulty: Moderate Keywords: capacity decision, strategic decisions 3. Capacity can be expressed by output or input
measures. Answer: True Reference: Planning Long–Term Capacity Difficulty: Moderate Keywords: capacity, input measures, output measures 4. Input
measures of capacity are inherently more accurate than output measures of... Show more content on Helpwriting.net ...
A firm may preempt the expansion of competitive firms by using an expansionist capacity strategy and announcing a large capacity expansion. Answer:
True Reference: Capacity Timing and Sizing Strategies Difficulty: Moderate Keywords: expansionist strategy, capacity expansion 17. An expansionist
capacity strategy minimizes the risks of overexpansion due to overly optimistic demand forecasts. Answer: False Reference: Capacity Timing and
Sizing Strategies Difficulty: Moderate Keywords: wait–and–see strategy, overexpansion, demand forecasts 18. A process's capacity requirement states
the future process capacity needed to meet projected customer demands, and includes an allowance for the desired capacity cushion. Answer: True
Reference: A Systematic Approach to Long–Term Capacity Decisions Difficulty: Moderate Keywords: capacity requirement, customer demand,
capacity cushion 19. A planning horizon is defined as the period beyond which the company does not have customer orders. Answer: False Reference:
A Systematic Approach to Long–term Capacity Decisions Difficulty: Moderate Keywords: time horizon 20. Output measures are used for estimating
capacity requirements when product variety and process divergence are high. Answer: False Reference: A Systematic Approach to Long
–Term
Capacity Decisions Difficulty:

Net Present Value and Correct Answer
uestion 1 (Worth 1 points)
Which of the following NOT correct?
Independent or non–mutually exclusive alternatives can be accepted at the same time.
The modified internal rate of return assumes that inflow are reinvested at 80 percent of the internal rate of return
This is a correct answer
It is the difference in the reinvestment assumptions that can be significant in determining when to use the present value or internal rate of return
methods.
Under the net present value method, cash flows are assumed to be reinvested at the firm 's weighted average cost of capital
Points earned on this question: 1
Question 2 (Worth 1 points)
A project has initial costs of $3,000 and subsequent cash inflows in years 1 – 4 of ... Show more content on Helpwriting.net ...
has a lease term equal to 75% or more of the estimated property.
is usually short–term and is often cancelable at the option of the lessee
must show up on the balance sheet.
none of the above

A project has initial costs of $3,000 and subsequent cash inflows in years 1 – 4 of $1350, 275, 875, and 1525. The company 's cost of capital is 10%.
Calculate the payback period for this project.
3.33 years
3.67 years
4.00 years
4.25 years
Leasing is a popular form of financing because...
lease provisions are generally less restrictive than a bond indenture
the lessor likely has experience with the equipment being leased.
the lessee may not be financially able to purchase.
all of the above

One advantage of the payback period method of evaluating investment opportunities is that it provides a rough measure of a project 's liquidity and
riskiness.
True
False
Heavy use of off–balance sheet lease financing will tend to...
Make a company appear more risky than it actually

Net Present Value and Papa Geo
Papa Geo's – Restaurant Budget Proposal For 2012 – 2017 BUSN–278 [Term] Professor[name] DeVry University
––––––––––––––––––––––––––––––––––––––––––––––––– Table of Contents Section| Title| Subsection| Title| Page Number| 1.0| Executive
summary| | | | 2.0| Sales Forecast| | | | | | 2.1| Sales Forecast| | | | 2.2| Methods and Assumptions| | 3.0| Capital Expenditure Budget| | | | 4.0| Investment
Analysis| | | | | | 4.1| Cash flows| | | | 4.2| NPV Analysis| | | | 4.3| Rate of Return Calculations| | | | 4.4| Payback Period Calculations| | 5.0| Pro Forma
Financial Statements| | | | | | 5.1| Pro Forma Income Statement| | | | 5.2|... Show more content on Helpwriting.net ...
Also, teething problems with marketing, operations etc might not lead to optimum sales. Therefore, we will project only 60% of this figure as
first year sales and use the estimated figure as the sales figure for Year 2. Over the planning period, starting from Year 2 onwards, sales are
expected to grow at a rate of 3.9% every year, in line with industry estimates of the average growth of the restaurant industry in the US (Source:
Mintel International, cited in section 6.0). * * 2.2 Methods and Assumptions * * According to the brief given on Papa Geo's restaurant, there are
about 10,000 families living within 15 minutes of the restaurant. Of these, between 3% and 5% are rich households (Phoenix marketing international,
Wikipedia) and it is assumed that another 15% comprise of high income and upper middle class households. That leaves about 80% of the 10000
families in the area,that are the target market for the restaurant. * * According to a research paper (in restaurant.org), American families eat out about
4 times a week. However, considering that our target market comprises of mostly middle and lower income families, I've assumed that they eat out
only about 2 times a week on an average. This means that, about 16000 families [(80%*10,000)*2] eat out in a week in that area in Ohio, Florida. * *
In terms of

Net Present Value Essay
1. Basic present value calculations
Calculate the present value of the following cash flows, rounding to the nearest dollar:
a.A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.
b.An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.
c.A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return.
d.An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has a 16% rate of return.
2. Cash flow calculations and net present value
On January 2, 20X1, Bruce Greene invested $10,000 in the stock market and purchased ... Show more content on Helpwriting.net ...
The following information is available:
Cost of boat $500,000
Service life 10 summer seasons
Disposal value at the end of 10 seasons $100,000
Capacity per trip 300 passengers
Fixed operating costs per season (including straight–line depreciation) $160,000
Variable operating costs per trip $1,000
Ticket price$5 per passenger
All operating costs, except depreciation, require cash outlays. On the basis of similar operations in other parts of the country, management anticipates
that each trip will be sold out and that 120,000 passengers will be carried each season. Ignore income taxes.
Instructions:
By using the net–present–value method, determine whether STL Entertainment should acquire the boat. Assume a 14% desired return on all
investments– round calculations to the nearest dollar.
5. Equipment replacement decision

Columbia Enterprises is studying the replacement of some equipment that originally cost $74,000. The equipment is expected to provide six more
years of service if $8,700 of major repairs are performed in two years. Annual cash operating costs total $27,200. Columbia can sell the equipment
now for $36,000; the estimated residual value in six years is $5,000.
New equipment is available that will reduce annual cash operating costs to $21,000. The equipment costs $103,000, has a service life of six years, and
has an estimated

Discuss Net Present Value (NPV) Payback has certain...
INVESTMENT APPRAISAL Characteristically, a decision to invest in a capital project involves a largely irreversible commitment of resources that
is generally subject to a significant degree of risk. Such decisions have far–reaching effects on a company's profitability and flexibility over the long
term, thus requiring that they be part of a carefully developed strategy that is based on reliable appraisal and forecasting procedures. In order to
handle these decisions, firms have to make an assessment of the size of the outflows and inflows of funds, the life span of the investment, the degree of
risk attached and the cost of obtaining funds. One of the most important steps in the capital budgeting cycle is working out if the benefits of... Show
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But this WACC can change and can be subject to disagreement. The NPV calculation is only valid for the interest rate that has been used. If an
organisation has appraised its capital investment proposals using an interest rate of 14% it will have a series of "go" or "no go" decisions which will
only be valid for an interest rate of 14%. If the interest rate rises to 15% or falls to 13%, the decisions will no longer be valid, the calculations will have
to be re–worked and new decisions taken. PAYBACK The payback period is the most widely used technique and is literally the amount of time
required for the cash inflows from a capital investment project to equal the cash outflows. The usual way that firms deal with deciding between two
or more competing projects is to accept the project that has the shortest payback period. Payback is often used as an initial screening method.
Payback period = Initial payment / Annual cash inflow So if 4 million Euro is invested with the aim of earning 500.000 per year (net cash earnings),
the payback period is calculated thus: P =

Memorandum: Net Present Value and Apex Investment Partners...
MEMORANDUM
To Apex Investment Partners:
According to my analysis of the Accessline's proposed term sheet, I do not believe that Apex would serve its own interests, or those of its investing
partners, by investing in Accessline according to the terms proposed. By investing at the proposed valuation, according to the proposed control and
incentive structure, Apex would be shouldering a disproportionate share of the risk should Accessline fail to meet its performance targets, or require
fresh inflows of capital from future investment rounds. Nor can Accessline take the sort of steps necessary to protect its investment in the case of
management failure.
Should Apex make a counter–offer, I would suggest the following terms: ... Show more content on Helpwriting.net ...
First and foremost, Apex must insist on the right to elect one director to the board. Series A investors already have one seat, and the current voting
clauses allow Series A to effectively retain control of decision making by requiring 2/3rds majority for many key decisions. Should future funding
rounds be required, those investors may insist on seats on the board.
Apex must remove antidilution protection from employee shares, as this removes a significant incentive for employees and management to reduce
Accessline's burn rate. However, as Series A investors retain a veto over the deal, their shares must be allowed to retain anti–dilution protection.
Additionally, we may propose a point at which additional investment rounds (above and beyond $32m of fresh capital) would cause dilution of ESOP
shares at an accelerated rate.
Dividends should be made cumulative and issuable upon a liquidation event or an IPO. Such dividends may be converted, if the holder desires, to
common shares. This will encourage management to seek a quicker exit.
Liquidation preference must be strengthened in other ways. In my opinion, the current arrangement allows management and employees to receive
unjustified returns in the case of a liquidation. I suggest a ratio of 1.5 times the Series B purchase price, applicable to Series A shares, with the
remainder to be

Capital Budgeting Techniques Like Net Present Value
Introduction The following paper analyzes a project from financial perspectives using the capital budgeting techniques like Net Present Value
(NPV) and Internal Rate of Return (IRR). Background My dad has a textile business, involved in embroidery and painting of the fabric. I have
been visiting my dad's office complex and observing the whole process of clothes manufacture. The most important asset for the business is a
large machine required for whole painting process. The existing machine with the business is in use from past 4 years and has to be discarded due
to some operational issues. As a student of finance, I will analyze the option of replacing this machine with a new one. In analyzing various options
from where to purchase the machine, I searched for various dealers, and compared the products with the prices they offered. I narrowed down the
choice to one machine provided by Stihl Machinery Co., Ltd. But then dad's financial manager, Mr. David Jones, asked me to reconsider the option.
He suggested that the existing machine can still run for another 5 years and the new machine is also expected to work for just five years. Also, the
price of the new machine is quite high so it is better to continue using the same old machine. On this argument, I decided to do a detailed analysis of
the option to replace the old machine. Only after the financial analysis, I will decide and suggest whether to buy the new machine or not. Analysis and
results The financial manager did

Net Present Value and Washington State University
Washington State University Finance 325
Practice Problems
1. What is the net present value of a project with the following cash flows and a required return of 12 percent? Year 0 1 2 3 Cash Flow–$28,900
$12,450 $19,630 $ 2,750
2.
What is the net present value of a project that has an initial cash outflow of $12,670 and the following cash inflows? The required return is 11.5
percent. Year 1 2 3 4 Cash Inflows $4,375 $ 0 $8,750 $4,100
3.
A project will produce cash inflows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year five, the project will be
closed and as a result should produce a cash inflow of $8,500. What is the net present value of this project if the required rate of ... Show more content
on Helpwriting.net ...
The equipment will be depreciated straight–line to a zero book value over the life of the project. The equipment will be salvaged at the end of the
project creating a $25,000 after–tax cash flow. At the end of the project, net working capital will return to its normal level. What is the net present
value of this project given a required return of 14 percent?
Answer Keys 1. NPV = в€’$28,900 +
$12,450 $19,630 $2,750 ; NPV = –$177.62

The Caledonia Project: An Analysis of Net Present Value...
The project will be analyzed with a net present value calculation. The future cash flows will be calculated and then discounted to present day, then
tabulated so that the net present value of the project is determined. This NPV will allow management to make a decision with respect to whether or not
the project should be undertaken or not.
Caledonia should focus on free cash flows for the project rather than accounting profit. The reason for this is that the free cash flows are the actual
value that is being added to (or subtracted from) the firm. Accounting profit contains non–cash items that do not actually affect the intrinsic value of the
firm. An example would be depreciation. The main value to the firm of depreciation is that the company writes depreciation expense off on its taxes,
so there is a cash flow benefit in that the company pays lower taxes. But the depreciation expense itself is not counted, because the original purchase of
the machine has already been included in the calculation.
According to the NPV calculation, the net present value of the project to Caledonia is $28.681 million. This means that Caledonia should accept the
project, all other things being equal. It could be that there are projects with higher NPVs, but unless that is the case, Caledonia is recommended to
accept any project with a positive NPV, and this project surely qualifies. The NPV calculation is as follows (extracted from Excel):
Year
0
1
2
3
4
5
Equipment
–7900
0
0

Net Present Value and Cash
GROUP ASSIGNMENT
CASE 23: DANFORTH & DONNALLEY LAUNDRY PRODUCTS COMPANY
Purpose of Meeting: To make capital budgeting decision with respect to the introduction and production of a new product, a liquid detergent called
Blast. Need to consider what types and which cash flows should be included in capital budgeting analysis.
D&D was producing and marketing two major product lines: 1. Lift–Off: Low –suds, concentrated powder. 2. Wave: Traditional powder detergent.
Questions & Answers: 1. If you were in Steve Gasper's place, would you argue to include the cost from market testing as a cash outflow?
If I'm Steven Gasper's I would not include the cost from market testing as a cash outflow. The reason is because the ... Show more content on
Helpwriting.net ...
The reasons of this are:– a) When the machine was bought for Lift–Off productions the cost has been calculated; and b) In obtaining the machine and
building for Blast productions no cash payment has been made.
Since the production of Blast will occupy current excess capacity, no incremental cash flows are incurred; hence, none should be charged against Blast.
4. Would you suggest that the cash flows resulting from erosion of sales from currentlaundry detergent products be included as a cash inflow? If there
was a chance that competition would introduce a similar product were D&D to fail to introduce Blast, would this affect your answer?
Yes, it should be treat as an incremental cash flow for the reduction in the sales of the Lift–Off and Wave, referred to as erosion. These lost sales are
included because it a cost (a revenue reduction) that the company must bear if it choose to produce the new product (Blast). It will not affect our
answer if there was a chance that competition would introduce a similar product at time D&D fail to introduce Blast. This happen due to the fact
that for constructs cash flow we ignore the competitor effect.
5. If debt is used to finance this project, should the interest payments associated with this new debt be considered cash flows?
No. We discount project cash flows with a cost of capital that is the rate of

Net Present Value and Correct Answer
Question 1 2 out of 2 points | | | Assume that the economy is in a mild 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
be affected by the change in economic conditions. Under these conditions, which of the following statements is CORRECT?Answer | | | | | Selected
Answer:|... Show more content on Helpwriting.net ...
| Correct Answer:| The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.| | | | | Question 8 2 out of 2 points | | |
Which of the following statements is CORRECT?Answer | | | | | Selected Answer:| An NPV profile graph is designed to give decision makers an
idea about how a project's contribution to the firm's value varies with the cost of capital.| Correct Answer:| An NPV profile graph is designed to
give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital.| | | | | Question 9 2 out of 2 points
| | | Which of the following statements is CORRECT?Answer | | | | | Selected Answer:| If two projects have the same cost, and if their NPV profiles
cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years.| Correct
Answer:| If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR
probably has more of its cash flows coming in the later years.| | | | | Question 10 2 out of 2 points | | | Which of the following statements is
CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of

Finance: Net Present Value and Options Principle Objective
FIN/571 Final Examination Study Guide
This study guide will prepare you for the Final Examination you will complete in the final week. It contains practice questions, which are related to
each week's objectives. In addition, refer to each week's readings and your student guide as study references for the Final Examination.
Week One: Foundations of Finance
Objective: Discuss 12 principles of foundational corporate finance.
1.__________ occurs when inaccurate information exists.
a.0 The principle of valuable ideas
b.0 Free–rider problem
c.0 Moral hazard
d.0 Adverse selection
Objective: Discuss 12 principles of foundational corporate finance.
2.__________ refers to situations wherein the agent can take unseen ... Show more content on Helpwriting.net ...
What is the contribution margin?
a.0 $0.90
b.0 $1.70
c.0 $2.50
d.0 Not enough information
Objective: Analyze the effect of price setting on capital budgeting.
12.The wholesale price for Captain John's is $1.00 per loaf, and the variable cost of production is $0.50 per loaf. Captain John's expects that

expansion will allow them to sell an additional 5 million loaves in the next year. What additional revenues minus expenses will be generated from
expansion?
a.0$25,000
b.0$250,000
c.0$550,000
d.0$2,500,000
Objective: Explain the methods, pitfalls, and benefits of capital rationing.
13.Pursuing valuable ideas is the best way to __________.
a.0 achieve extraordinary returns
b.0 get yourself in trouble
c.0 restrain your spending
d.0 avoid risk
Objective: Explain the methods, pitfalls, and benefits of capital rationing.
14.Due to asymmetric information, the market fears that a firm issuing securities will do so when the stock is __________.
a.0 undervalued
b.0 overvalued
c.0 caught up in a bear market
d.0 being sold by insiders
Objective: Create a financial plan.
15.__________ says to forecast the firm's cash flows, and analyze the incremental cash flows of alternative decisions.
a.0The signaling principle
b.0The time value of money principle
c.0The principle of incremental benefits
d.0The principle of risk–return
Objective: Create a financial

Net Present Value and Project
UNIVERSITY OF LA VERNE La Verne, California Tesca Case A Paper Submitted in Partial Fulfillment of the Requirements for BUS 635 CRN 1105
– Managing Financial Resources Nepal Plummer College of Business and Public Management Department of Management and Leadership March 3,
2014 TESCA CASE STUDY SUMMARY RESULTS AND RECOMMENDATIONS The proposed refrigerator manufacturing and sales project for
Tesca Works, Inc. is a financially complicated project which on the surface, given the increase in energy costs and customer demand may seem like a
winning proposition. However, when we delve further into the details of the financial projections along with projections of the... Show more content on
Helpwriting.net ...
The price per kilowatt hour has increased almost 50% in 10 years (EIA, 2014). Thus to the consumer the price of energy is a big concern and the
costs will most likely continue into the future. There is potential for an increased demand to replace aging inefficient appliances that are causing
increased electrical bills for consumers. The energy cost and potential benefits to the consumer are of importance when determining the future of this
project. The project is forecast to be of a positive value if the demand for refrigerators is at an average or strong demand from consumers. However, the
realization of a high or average demand is mainly based on 'gut–feeling' rather than on sound financial information. There are too many variables in the
marketplace that could cause demand to be weaker than projected. Such variables as a weak economy or recession could cause sales to drop which
in turn would cause the project to lose its value quickly. 2) What is the project's cost of equity? What is the appropriate discount factor to use for
evaluating the refrigerator project? As seen in Exhibit I below, the project's cost of equity (COE) is calculated to be 13.487%. We found this value by
using the Capital Asset Pricing Model (CAPM) formula by adding the treasury note yield with the beta value, then taking the market return rate and
subtracting the treasury note yield. We then multiply those values together to attain the cost of equity value of 13.487%. This means

Net Present Value
There are six projects which "Cheltenham Races" LTD aims to undertake and for this purpose the company is using investment appraisal methods.
Investment appraisal procedure is the technique of evaluation of different projects to choose the best projects which maximise the company's profit.
THE INVESTMENT DECISION MAKING PROCESS:
There are number of stages to be followed in the investment decision making process. * Origination of proposals;
It is very important at this stage that organisation's have free friendly atmosphere for the staff/participants in decision making, as new ideas are
expected to develop at this stage, thus rejecting some alternatives projects early. * Project screening;
At this stage qualitative factors ... Show more content on Helpwriting.net ...
In this method the following factors have much importance and that they affect the results of the NPV. Such factors are; a) Time value of money b)
Inflation c) Depreciation d) Taxation / Written down allowance
Time value of the money is based on the concept that the value of the money increases over time, e.g. ВЈ1 earned or spent sooner is worth more than
ВЈ1 earned or spent later. There are many reasons for this rise in worth of present value of ВЈ1 in the future. * Uncertainty
The business world is considered full of risk and uncertainty. It is believed that in practise the business get promise of cash in future, it can never be
certain until it is actually received. * Inflation
Inflation is the decline in purchasing power of the monetary unit. It is a common sense that money's worth changes over time due to inflation. If there
is an element of inflation then it is necessary to adjust the values by the given rates for inflation. Inflation is not considered important in the decision
making process when it is low but it is important to include the factor when it rises let say 10 %.
Factors influencing Ranking
NPV vs. PI
If we take an approach of Net present value (NPV) and Profit index (PI) to rank these 6 projects without setting any constraints then the simple raking
would be below showing projects in the following sequence. RANK| PROJECT| | INVESTMENT| NPV| PI| RANK| (NPV)| | | ВЈ

Methods Of The Feasibility Study On Net Present Value Essay
Methods of the feasibility study.
Net present value
We will determine the viability of the investment using the Net present value method. It will also help to estimate the costs that will be incurred in the
future and the benefits that business will get. We choose this method because it shows actual benefits and takes into considerationtime value of money (
Baker and Powell, 2000)
PV = FV/ (1+r) n
PV– present value, FV– future value in n periods, r–expected rate of return.
Cost /benefit Analysis
Total cost of ownership
Since the venture is related to technology, we will use Total Cost of Ownership method to determine the costs that are incurred in the venture. This will
help us to come up with estimates on costs for; capital required, licensing fees, labor costs, technology advancement skills, operational costs and other
costs related to the business.
However, this business will bring both intangible and tangible benefits to the company. This benefits are;
1.Since it will involve technology in service delivery, there will reduced costs such as the cost of labor.
2.More revenue will be generated.
3.Time saving
SWOT ANALYSIS OF HOME AUTOAMATION TECHNOLOGY
Strengths
There will be a wide market as many people are ready to use this technology since it saves time.
Technology is readily available and can be easily adapted.
Home automation technology ensure availability of products which are unique, therefore it will attract attention of many people who like

Net present value (NPV), payback period (PBP) and internal...
H00112703
INTERNATIONAL BUSINESS MANAGEMENT
FRIDAY 08TH MARCH 2012
C38FN 2012–2013
CORPORATE FINANCIAL THEORY
WORDCOUNT: 2874
Abstract
This essay will discuss the net present value (NPV), payback period (PBP) and internal rate of return (IRR) approaches for a project evaluation. It is
often said that NPV is the best approach investment appraisal, which I why I will compare the strengths and weaknesses of NPV as well as the two
others to se if the statement is actually true.
Introduction
To start of, the essay will attempt to explain the theoretical rationale of the net present value approach to investment appraisal as well as its strengths
and weaknesses. From there, introduce the payback period method and then internal rate ... Show more content on Helpwriting.net ...
The positive aspect of it using cash flows is that it determines when the project will earn its incomes, how soon they will come as well as how
sizable they are going to be. What is meant when he states that it uses all the cash flows is that it acknowledges every single cash flow, regardless of
the date or the size. The advantage for the shareholders of the firm is that it shows how much they can expect to get back from an investment as it
takes into account the riskiness of the project and doesn't ignore the time value of money. However, the NPV approach those have some disadvantages
as well.
The main disadvantage to the net present value approach is that it is sensitive to discount rates. The computations of NPV are a summary of multiple
discounted cash flows that are converted into present value terms for the same point in time. This could affect the result both positively and
negatively, and as said earlier, it is almost impossible to predict what the future brings. Let's use the example given in the article "Uses, abuses and
alternatives to NPV" by Ross (1995). If the current interest rate leads to a negative NPV, but in the future the interest rate decreases and leads to a
positive NPV. The management or analyzers may miss out on a good investment opportunity if they sell the project early because with the current

interest rate it is considered not profitable.
Another example, let's call it project a, could be if we were

Net Present Value and Free Cash Flow Essay example
1. Given the proposed financing plan, describe your approach (qualitatively) to value AirThread. Should Ms. Zhang use WACC, APV or some
combination thereof? Explain. (2 points) * From the statement of AirThread case, we know that American Cable Communication want to raise capital
by Leveraged Buyout (LBO) approach. This means ACC will finance money though equity and debt to buy AirThread and pay the debt by the cash
flows or assets of AirThread. * In another word, it's a highly levered transaction using a fixed WACC discount rate; however the leverage is changing
in fact. * If we want to use WACC method, one assumption must be met: this program will not change the debt–equity ratio of AirThread. Under LBO
approach, it's... Show more content on Helpwriting.net ...
* Jennifer decided to use Bianco's recommendation, a 5% equity market risk premium (=5%) * Interest rate had a 125bp spread over the current yield
on 10–year US Treasury bonds (=4.25%). * By CAPM, we can get (8.3277%). We can calculate the each of different companies and get the average
value. Or we can use CAPM once from average =0.8155. These two results are equivalent. * We already know the new is the interest rate of debt
(5.5%). We use the average industry level (40.1%) as ATC's D/E ratio like discussed in case page 7. By, we can get the new (9.46%). * By, we can
calculate the new WACC is 7.7%.
Ms. Zhang should us the new WACC to the terminal value * She is considering thecash flow paid to all the equity or debt holders. So she cannot use
the equity cost of capital.
3. Compute the unlevered free cash flow and the interest tax shields from 2008 to 2012 based on estimates provided in Exhibit 1 and Exhibit 6. (3
points)
Unlevered Free Cash Flow
Chart 2
Free cash flow is calculated as:
EBITГ—1–t+Depreciation&Amortization Expense–Increase In NWC–Capital Expenditure * First, we calculate the Net Operating Profit after
Tax, which is equals to EBITГ—1–t. * Second, we use the working capital assumptions to calculate the net working capital:
The formulas are:
Account Receivable=Total RevenueГ—41.67360
Days Sales Equip. Rev. =EquipmentГ—154.36360
Prepaid Expenses= (System Operating

Notes On The Net Present Value
Question C [1] The Net Present Value [NPV] is the total sum of the present values of all the expected cash flows. For a project with a normal cash
flows, this would mean that the NPV is the present value of expected cash flows minus the initial cost of the project. The formula is as such; NPV =
–CF0 + CF1 (1+k)–1 + CF2 (1+k)–2 + ... + CFn (1+k)–n where; CF0 is the initial investment outlay, or cash outflow CFt is the after–taxed cash
inflows at time t k is the required rate of return for the project or investment. Based on the information given; NPV of Project L= –$100 + $10
(1+0.1)–1 + $60 (1+0.1)–2 + $80 (1+0.1)–3 = $18.783 [in thousands of dollars] NPV of Project S= –$100 + $70 (1+0.1)–1 + $50 (1+0.1)–2 +... Show
If Project S is accepted; Project S' cash inflows sum up to a total of $140, 000. It is more than enough to recover the cost outlay [cash outflow or
cost of the investment], maintain and deliver the 10% opportunity cost of capital, and still have [present value of] $19.985 [in thousands of
dollars] available which belongs to the shareholders [shareholder's wealth increased by $19.985 (in thousands of dollars)]. If Project L and Project
S are independent, both of the projects should then be accepted as they both increase the shareholder's wealth. If Project L and Project S are
mutually exclusive, and, one project is to be chosen; Project S should then be chosen instead of Project L, as Project S increases the shareholder's
wealth more than Project L. Question C [3] Based on the formula given in the answer to Question C [1], the NPV relies on the WACC used. This
means that the NPV is affected by the WACC given or used. Consequently, the NPV would change, if the WACC is changed. When the WACC
inclines, the NPV declines. Similarly, when the WACC declines, the NPV inclines. Question D [1] The internal rate of return is the rate of return,
based on the discounted cash flows that a company can expect to earn by investing in the project. It is the interest rate that makes the NPV of the
investment or project, equals to zero [the proposed capital expenditure equal to the present value of the

Present Value
Net present Value, Mergers and acquisitions Abstract Main objective of undertaking this to report was learn about NPV present value (NPV) method to
make capital budgeting decision(Google NEW Project) and success factors involved in mergers and acquisitions(Google–Groupon Case). Answers to
the Assignments Part I: Google should go ahead with the new project. Part–II: Google's acquisition of Groupon would have been win –win situation for
both corporations Now I will discuss both parts in detail below. Part I: Capital Budgeting Capital budgeting is the process of making long–term
planning decision relating to planning for capital assets as to whether or not money should be invested in the long term projects... Show more content on
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II – MERGERS AND ACQUISITIONS Assuming rationality from all players, mergers and acquisitions deals originate out of specific strategic
corporate requirements. In reality, the advisors (both legal & financial) and middlemen also play a significant role in the original activity. Some of the
best acquisition candidates are current business partners. They may be customers who work closely with the buyer to develop new products, or
suppliers with whom the buyer has close, long term relationships. However, these targets generally imply either upstream or downstream acquisitions
so that the buyer becomes more vertically integrated within its industry and should be a strategic decision by senior management acquirers / targets
may focus on competitors for a potential acquisition/sell off. Buying competitor implies horizontal integration. Google–Groupon Case In 2010 there
were rumors related to Groupon (online couple provider) being purchased by Google (technical search giant). Google offered around $6 Billion to
buy Groupon (daily deals site). It would have been one of the biggest online acquisitions. Groupon became the quickest company to reach sales target
of $1 billion. Groupon has done a marvelous work by linking local merchants to a giant e–commerce machine and then successfully delivering

Net Present Value Essay
Investments are necessary for a business to grow. Although, this is true it much more valuable to know about the value and benefit of the investment.
Selecting the best investment choice will ensure growth in the future and will generate value. The problem typically arises when trying to utilize
capital budgeting skills in determining different tasks with the same risk. There are many ways to determine the correct return gained from
investments. The (NPV) Net Present Valuehas proven to be the best method for organizations to use. NPV gives a direct image of what can be
profited or loss when investing. This allows for the best decision to be made when selecting a project.
Health Care Financial Management
All–important ... Show more content on Helpwriting.net ...
Based on this method the future funds that can be potentially earned from the project have to be larger than the starting amount of investment. At
minimum the price of investment has to be recouped from the project. In both situations there has to be a recoupment or the projects will be
abandoned because there would be too much burden on the organization with no gain. Now, if the ROI is higher than the price of capital, only then
can the choice be made. Assuming both ideas have large ROI's then the idea with the greatest is going to be chosen. This situation is known as hurdle
rate (Damodar, 2017).
PI or Profitability Index is the method that involves the profits earned from a project. Just like with NPV all predicted income is discounted to current
rates utilizing the price of capital, usually the discounted rate. The way that choices are made under this method is that all tasks with a profitability
index of higher than one with be chosen and anything under one will not be chosen. This is because it is assumed that the profitability index value of
larger than one lets on that the projected cash flow will have a higher value than the starting investment. Both PI and NPV answers will reveal similar
data so, it is not sensible to utilize this method to determine the project (Tarantino, 2006).
Payer mix refers to cash mix or product mix. The payer mix has an influence on the cash

Present Value and Capital Budgeting
Part I
A.Present Value with Discount rate of 7% = 15000/(1+7%) = 15000/1.07 = $14,018.69
Present Value with Discount rate of 4% = 15000/(1+4%) = 15000/1.04 = $14,423.08
B.Account A– Present Value with Discount rate of 6% = 6500/(1+6%) = 6500/1.06 = $6,132.08
Account B – Present Value with Discount rate of 6% = 12600/(1+6%)^2 = 12600/1.1236 = $11,213.96
C.Present Value of Gold Mine 7% = 4900000/1.07 + 61,000,000/(1.07)^2 + 85,000,000/(1.07)^3
= 45,794,392.52 + 61,000,000/1.1449 + 85,000,000/1.2250
= 45,794,392.52 + 53,279,762.42 + 69,385,319.54
= $168,459,474.48
By using the same concept above we can determine the present value of Gold Mine.
Present Value of Gold Mine @ 5% = 175,421,660.73
Present Value of Gold Mine... Show more content on Helpwriting.net ...
Year|Cash flow| Discount rate| Discount factor| Discounted cash flow| 0| –$815,000| 1%| 1.00| –$815,000| 1| $141,000| 1%| 1.01| $139,604| 2|
$320,000| 1%| 1.02| $313,695| 3| $440,000| 1%| 1.03| $427,060| | | | Net present value| $65,358|
If the discount rate is 4%, what is this project's net present value? Year| Cash flow| Discount rate| Discount factor| Discounted cash flow| 0|–$815,000|
4%| 1.00| –$815,000| 1| $141,000| 4%| 1.04| $135,577| 2| $320,000| 4%| 1.08| $295,858| 3| $440,000| 4%| 1.12| $391,158| | | | Net present value| $7,593|
10%| 1.00| –$815,000| 1| $141,000| 10%| 1.10| $128,182| 2| $320,000| 10%| 1.21| $264,463| 3| $440,000| 10%| 1.33| $330,579| | | | Net present value|
–$91,777|
18%| 1.00| –$815,000| 1| $141,000| 18%| 1.18| $119,492| 2| $320,000| 18%|

Stryker: Net Present Value and Capital Budgeting Process
1. What are the missions of CERs and the capital budgeting process at Stryker?
Mission: Standardize and formalize the capital budgeting process. The CERs and capital budgeting process were implemented so that a more formal
process of requesting capital expenditure and approving them would be applied. All this was put in place to support cash flow targets and maintain
Stryker's 20% growth benchmark.
To what extent have they been shaped by elements of corporate finance theory?
They are heavily influenced by corporate finance theory
All submissions are required to show the net present value (NPV), internal rate of return (IRR) and payback period.
They need to highlight the project's anticipated outgoing cash flow and earnings ... Show more content on Helpwriting.net ...
3. Given Stryker's strategy and its long––вЂђrun goals, what modifications to the current system– analytical, organizational, and/or procedural–would
you recommend? Develop some specific proposals and explain how they address specific problems.
Procedural Modifications and Recommendations: The CER system was developed to outline specific requirements of a project and create rigorous
documentation of the projects. As well, the process was put into place to enable a more structured review of these proposals between employees and
management. The implemented a two week review timeframe to receive and review the documentation. These processes while good had several flaws:
The committee was not holding regular meetings and as a consequence "submission and review" process was not being completed on time.
As they were meeting virtually this did not facilitate good conversation/discussion on the proposals. For insignificant "no brainer" projects there was
excess documentation, decreasing efficiency and productivity.
To improve the efficiency of how the Capital Committee reviews and approves proposals they need to establish a scheduled face–to–face session
(perhaps on a weekly basis) to receive and review all CERs. This will give

Net Present Value/Present Value Index
Net Present Value/Present Value Index The management team at Savage Corporation is evaluating two alternative capital investment opportunities.
The first alternative, modernizing the company's current machinery, costs $45,000. Management estimates the modernization project will reduce
annual net cash outflows by $12,500 per year for the next five years. The second alternative, purchasing a new machine, costs $56,500. The new
machine is expected to have a five–year useful life and a $4,000 salvage value.
Management estimates the new machine will generate cash inflows of $15,000 per year. Savage's cost of capital is 10%. Required
a. Determine the present value of the cash flow savings expected from the modernization ... Show more content on Helpwriting.net ...
Indicate whether the investment opportunity should be accepted.
The Internal Rate of Return appears to be higher than the established investment opportunity hurdle rate of 15 percent therefore it would be a good idea
to accept this investment opportunity.
Exercise 24–6A Determining net present value
Travis Vintor is seeking part–time employment while he attends school. He is considering purchasing technical equipment that will enable him to start
a small training services company that will offer tutorial services over the Internet. Travis expects demand for the service to grow rapidly in the first
two years of operation as customers learn about the availability of the Internet assistance. Thereafter, he expects demand to stabilize. The following
table presents the expected cash flows. Year of Operation Cash Inflow Cash Outflow
2006 $5,400 $3,600
2007 7,800 4,800
2008 8,400 5,040
2009 8,400 5,040 In addition to these cash flows, Mr. Vintor expects to pay $8,400 for the equipment. He also expects to pay $1,440 for a major
overhaul and updating of the equipment at the end of the second year of

Net Present Value and Capital Budgeting Process
Introduction
Investment>>Capital Budgeting: The management of long–term (fixed) assets. Ensures investment projects create (vs destroy) value.
Finance>>Working capital management: The management of short–term assets and liabilities. Ensures cash inflows = cash outflows at all times.
Finance>>Capital Structure: The management of long–term financing. Balances debt & equity to maximize value.
Payout>>Dividends and Share Repurchases: The management of discretionary cash and cash flow. Balances dividend payments and cash
retention needs.
Value = the discounted sum of cash outflows & inflows. The CF capture the economic costs and benefits. Discounting adjusts for cash flow timing
and risk.
Investment ... Show more content on Helpwriting.net ...
Ignores post Payback CFs
Internal Rate of Return (IRR): Discount rate (r = IRR) that sets NPV = 0 accept the IRR > discount rate for investing type project. Higher is better
Trial and Error Approach: Guess a first value for r, calculate NPV Better: Use IRR() or "Goal Seek" function
Project competing: Choose high NPV rather than instead of high IRR.
The Profitability Index (PI): accept the projects which PI >1
Problem: Like IRR, PI ignores the scale of the project. NPV says how much value is created, the PI does not.
Sunk cost: Irrecoverable past spending
32572461905Capital Asset Pricing Model: Security Market Line (SML) Calculate Rs
00Capital Asset Pricing Model: Security Market Line (SML) Calculate RsFinancial Policy: The Cost of Capital Expected Return & Risk
Covariance & Correlation of Stock 1 and Stock 2 Expected Portfolio Return:
Portfolio Variance: STD. Dev =7.00% (= 0.00491/2).
Risk Premium aka Sharpe Index:
Financial Policy: Capital Structure
MM Propositions I & II (no taxes):
MM I: VL = VU, Leverage does not affect firm value. Corporate leverage = Homemade leverage.
MM II: Set RWACC = RSU (пЂЅпЂ Unlevered–firm WACC) RSL = RSU + (B/S) (RSU– RB), Cost of equity (& risk) rises with leverage, But
the WACC is unaffected by

Essay on Net Present Value and Percent
Fin 3320
Practice Questions1 – Total Course
1. Your wealthy uncle has set up a special account that will give you $500,000 on your 35th birthday. Assuming you are age 21 (thus 14 years from
receiving this), what is the present value of this gift if the appropriate discount rate is 8.0%? (Ch5)
a. $170,231
b. $282,449
c. $442,619
d. $191,206
e. $734,664
2. You need $10,900 for the down payment on a new car. You presently have $5,000 in savings for which you expect to earn 6% (annual rate,
compounded monthly). If you deposit a further $500 each month to this account, how long, approximately, before you will accumulate enough to meet
your down payment requirement? (Ch6)
a. 17.6 Years
b. 8 Months
c. 11 Months
d. 16 Months
e. 1.84 Years
3. Which ... Show more content on Helpwriting.net ...
Dividends are expected to grow at 25% rate for the next 3 years, with the growth rate then leveling at a constant 4% thereafter. The required return is
12% and the company just paid a $2.50 annual dividend. What is the current share price?
(Ch 8)
a. $34.92
b. $54.56
c. $68.14
d. $92.12
e. $126.21

3
14. You are considering two independent projects both of which have been assigned a discount rate of 14% percent. Based on the project NPV, what is
your recommendation concerning these projects? (Ch 9)
Year
0
1
2
a.
b.
c.
d.
e.
Project A
Cash Flow
–$40,000
$22,000
$28,000
Year
0
1
2
Project B
Cash Flow
–$39,000
$28,000
$21,000
You should accept both projects.
You should reject both projects.

You should accept project A and reject project B.
You should accept project B and reject project A.
You should accept project A and be indifferent to project B.
15. Referring to the above question and table, if the projects under consideration are mutually exclusive, then what would your answer be? (Ch 9)
a.
b.
c.
d.
e.
You should accept both projects.
You should reject both projects.
You should accept project A and reject project B.
You should accept project B and reject project A.
You should accept project A and be indifferent to project B.
16. Drake Builders, Inc. purchased a lot in Tucson, Arizona 10 years ago at a cost of $380,000.
At the time of the purchase, the company spent $15,000 to level the lot and another
$20,000 to install storm drains. Today, that lot

Examples Of Present Value Of Capital Finance
Present Value: The current worth of a future sum of money or stream of cash flow at a specified rate of return. Future cash flows are "discounted" at
the discount rate; the higher the discount rate, the lower the present value of the future cash flows. Present value of annuity: An annuity is a series of
equal payments or receipts that occur at evenly spaced intervals e.g. leases and rental payments. Present value of a perpetuity is an infinite and
constant stream of identical cash flows. Future value: The value of an asset or cash at a specified date in the future, based on the value of that asset in
the present. Future value of an annuity (FVA): The future value of a stream of payments (annuity), assuming the payments is... Show more content on
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However, unlike debt, equity does not need to be paid back if earnings decline. On the other hand, equity represents a claim on the future earnings of
the company as a part owner. The cost of equity is complicated in the sense that the rate of return demanded by equity investors is not as clearly
defined as it is by lenders. Theoretically, the cost of equity is approximated by the Capital Asset Pricing Model (CAPM) = Risk–free rate + (Company's
Beta x Risk Premium). Unlike bondholders, stockholders are a part of the company until they choose to sell their shares either to another investor,
another company or back to the issuing company itself. Stockholders can hold their shares indefinitely to collect dividend revenue, or they can sell
their shares when the market price rises enough making them a profit. While the cash flows for a stock are not contractual and are therefore riskier,
a reasonable assumption of constant dividend growth, makes stock valuation much easier using the formula P = D1/k +g. This constant dividend
growth formula can also be used in conjunction with discounting projected individual dividend cash flows to value stocks. Another way of valuing
stock is to use the formula P = EPS * P/E. EPS is a measure of return, while P/E is a measure of risk. Investors gain the benefit of increasing the value
of their wealth through capital gains or interest/dividend income. As dividends

Net Present Value
Critics to DCF methods
Ducht an UK companies
* However, it is found inappropriate to use DCF methods for investments that have got strategic implications. * There are various reasons for the use of
open approach. Since the outcomes of these projects are highly unforeseen, according one interviewee, the application of quantitative tools is not
plausible. Therefore, companies tend to apply the rule of thumb methods rather than standardized quantitative models. The justification for not applying
quantitative models is some times attributed to the nature of a project.
Capital inv appraisal of new technologies: Problems, misconceptions and research directions
* Specifically, it has been alleged that the traditional appraisal ... Show more content on Helpwriting.net ...
The missapplication of capital investment appraisal techniques * Surveys of capital budgeting practices in the UK and USA reveal a trend towards the
increased use of more sophisticated investment appraisals requiring the application of discounted cash flow (DCF) techniques. Several writers, however,
have claimed that companies are underinvesting because they misapply ormisinterpret DCF techniques. * the only justification we can think of for
using the accounting rate of return method is because top management believe that reported profits have an impact on how financial markets evaluate a
company. This is further reinforced in many companies by linking management rewards to short–term financial accounting measures. Thus a project's
impact on the financial accounting measures used by financial markets would appear to be a factor that is taken into account within the
decision–making process. * Dimson and Marsh (1994) have expressed concern that many UK companies may be using excessively high discount rates
to appraise investments and, as a result, these companies are in danger of underinvesting. In the USA it has also been alleged that firms use discount
rates to evaluate investment projects that are higher than their estimated cost of capital (Porter, 1992).
Conclusions:
Ducht an UK companies * All the UK

Adjusted Present Value Essay
1.Discuss and explain adjusted present value (APV), the flow to equity (FTE) and the weighted average cost of capital (WACC).
The adjusted present value (APV) is defined as the net value of the project with the benefits from financing activities if the project is solely funded by
equity. Therefore, it's a useful tool to measure a project when the high debt level would be shifted to the company value if project is accepted. The
flow to equity (FTE) approach is an alternative to adjusted present value which discounts the cash flow in the project that flow to the equity holders of
a levered firm (Ross et.al. 2013, p.561). The major difference of unlevered and levered firm cash flow is the after tax interest payment. Finally, the
weighted average cost of capital (WACC) approach considers the firm that is financed with both debt and equity and allocates the costs proportionally
for each capital component. The cost of capital is ... Show more content on Helpwriting.net ...
Discuss the other methods for calculating project operating cash flow (OCF) other than using earning before tax (EBT).
When discuss about cash flow, literally it is discussing about how the cash in and cash out in the company. The three others OCF are the top–down,
bottom–up, and tax–shield approaches.
Firstly, the top–down approach is an OCF from top subtract until bottom, started from income statement subtracting costs and taxes (Ross et.al. 2013, p.
182), and useful with trustworthy estimates of the relevant dollar costs.
Secondly, the bottom–up approach is started from net income and adding back any noncash deduction such as depreciation (Ross et.al. 2013, pp.
182–183). It is useful with well–prepared income statements for a project since the OCF is equal to net income plus depreciation.
Finally, the tax–shield approach explains the OCF takes into account of the depreciation tax shield and after tax gross profit which is revenue gains
and/or cost reduction. Only depreciation tax shield is added back (Ross et.al. 2013, p.

Net Present Value
MGMT 640 Section 9056, Mid–term Exam Fall 2010 This exam consists of 33 multiple–choice questions. Enter your answers on the Answer tab of the
Excel spreadsheet that has been provided. (The worksheet tabs are located at the bottom of your worksheet.) Put your calculations on the
Calculations tab as evidence of your work. Your calculations will be used as evidence of your independent work only and will not be used for partial
credit for incorrect answers. Change the Excel file name to include your name (i.e. "SmithJMidtermExam") and submit it in the appropriate assignment
folder in your WebTycho classroom before the end of the exam period. Submit only your answer sheet. 1.) Which of the following is an appropriate
goal for the... Show more content on Helpwriting.net ...
a. 7.1%;0.53 b. 7.1%;1.90 c. 3.7%;0.53 d. 3.7%;1.90 12.) Market–value ratio: RTR Corp. has reported a net income of $812,425 for the year. The
company's share price is $13.45, and the company has 490,475 shares outstanding. Compute the firm's price–earnings ratio. q. 4.87 times r. 8.12 times s.
5.17 times t. None of the above 13.) Which one of the following statements is NOT correct? u. The DuPont system is based on two equations that
relate a firm's ROA and ROE. v. The DuPont system is a set of related ratios that links the balance sheet and the income statement. w. Shareholders
cannot use this tool since shareholders outside of management do not have access to the information required to complete a DuPont system
analysis. x. All of the above are correct. 14.) For a firm that has no debt in its capital structure, y. ROE > ROA. z. ROE = ROA. {. ROE <
ROA. |. None of the above 15.) Present value: John Hsu wants to start a business in 12 years. He hopes to have $130,000 at that time to invest in the
business. To reach his goal, he plans to invest a certain amount today in a bank CD that will pay him 7.50 percent annually. How much will he have to
invest today to achieve his target? (Round to the nearest dollar.) a.

How Consumer Price Index and Net Present Value Affect...
The project has a positive net present value of $46.59 million. As such, the project should be accepted. The reasoning behind this is that the company
should accept any project if the NPV is above 0. The NPV reflects value added to the company. Management, therefore, should pursue any project that
adds value to the company and that means pursuing projects with a positive NPV. A positive NPV will increase shareholder wealth, and a negative
NPV will reduce shareholder wealth (Baker, 2000).
The dollar value of the NPV in light of the expenditure is irrelevant. The project adds to shareholder wealth, and should therefore be accepted. The only
time when the dollar values of the expenditure and the NPV matter is when the company must choose between two mutually exclusive alternatives
(FAO, n.d.). In that case, the obligation that management has is to undertake the project that delivers the greatest increase in shareholder wealth.
The CEO must have made several assumptions. The first is that the company can successfully enter so many markets simultaneously. From an
operations perspective, this is a very difficult expansion plan. A plan this ambitious is not usually undertaken a firm that has never expanded this way.
There must be a few implicit assumptions here. The company is clearly assuming that all of these markets are going to remains stable. While political
and economic stability are reasonable assumptions for Germany, they are less so for Brazil. Even entering the

Essay on Net Present Value and Capacity Planning
CAPACITY PLANNING Real Options Analysis Practice Questions and Solutions CAPACITY PLANNING Question 1: PROJECT SABLE Use a
30% per year discount rate to evaluate Project Sable, which has two phases. You may invest in the first, in both or in neither. You may not invest in the
second phase without investing in the first. пЃ± Phase 1 requires an investment of $100. One year later the project delivers on the average $120. пЃ±
At that time, after the phase 1 payout has been received, you may invest an additional $100 for phase 2. One year later, phase 2 pays out on the
average $140. However, phase 2`s payout can go up or down by 20%. a. How much would Project Sable be worth if it offered only the phase 1
opportunity? b. How much would... Show more content on Helpwriting.net ...
Phase–1 Year Net–cash–flow PV @ 5% NPV Alternative–1 Year Net–cash–flow PV @ 5% NPV Alternative–2 Year Net–cash–flow PV @ 5% NPV
CAPACITY PLANNING 0–300 –300 –7.48 0 0 45.37 0 1 10 9.52 2 12 10.88 3 15 12.96 4 15 12.34 5 15 11.75 6 15 11.19 7 15 10.66 8 15 10.15 9 10
15 315 9.67 193.38 1 0 2 0 3 –240 –207.32 4 10 8.23 5 12 9.40 6 15 11.19 7 15 10.66 8 15 10.15 9 10 15 315 9.67 193.38 1 2 3 4 5 6 –235 –175.3 7
10 7.11 8 12 8.12 9 10 15 315 9.67 193.38 42.92 Phase1+ Alternative–1 Phase 1+ Alternative–2 –7.48+45.37 –7.48+42.92 A1>A2 Question 2: Suppose
that discount rate is 5% and volatility is 20%. (c) Do you prefer Alternative 1 or 2 based on real options method? Decide whether the launch of new
product is profitable or not based on real options valuation? Alternative–1 Year Revenue Investment CAPACITY PLANNING 0 1 2 3–240 4 10 5 12 6
15 7 15 8 15 9 15 10 315 Options valuation of Alternative–1: Real Options S = PV(Revenue) X = PV(Investment) A=S/X B = SQRT(T) * sigma 23%
of S пѓ =58.12 252.69 207.32 1.22 0.35 Question 2: Suppose that discount rate is 5% and volatility is 20%. (c) Do you prefer Alternative 1 or 2
based on real options method? Decide whether the launch of new product is profitable or not based on real options valuation?

Net Present Value and Question
SEAT NUMBER: ............. ROOM: .................... FAMILY NAME................................................. This question paper must be returned. Candidates are
not permitted to remove any part of it from the examination room. OTHER NAMES............................................... STUDENT
NUMBER.........................................
SESSION 2 EXAMINATIONS NOVEMBER 2012
Unit Code and Name: AFIN252, Applied Financial Analysis and Management Time Allowed: 3 hours plus 10 minutes reading time. Total Number of
Questions: 50 Multiple Choice Questions plus 8 full response questions. Instructions: 1. PART A (30 marks): There are 50 multiple choice questions.
Answers to these must be recorded on a red–coloured General Purpose Answer Sheet which will be marked by a computer. Please make sure your
name is on this sheet.
2. ... Show more content on Helpwriting.net ...
Question 6 Coolibah Holdings Limited is expected to pay dividends of $1.13 every six months for the next three years. If the current price of Coolibah
stock is $22.40, and Coolibah 's equity cost of capital is 16%, what price would you expect Coolibah 's shares to sell for at the end of three years? A)
$26.74 B) $28.82 C) $29.36 D) $31.36 E) $34.96
4(41)
Question 7 Ascension Limited will pay a dividend of $1.80 per share one year from today and a dividend of $2.40 per share two years from today. It is
expected that Ascension 's share price will be $44 per share immediately after the second dividend payment. If Ascension has an equity cost of capital
of 8%, what is the maximum price that a prudent investor would be willing to pay for an Ascension Limited share today? A) $39.27 B) $40.22 C)
$41.45 D) $42.40
Question 8 Which of the following statements is FALSE? A) As firms mature, their earnings exceed their investment needs and they begin to pay
dividends. B) Total return equals earnings multiplied by the dividend payout rate. C) Cutting the firm 's dividend to increase investment will raise the
share price if, and only if, the new investments have a positive net present value (NPV). D) We cannot use the constant dividend growth model to value
the shares of a firm with rapid or changing growth.

5(41)
Question 9 Bandicoot Enterprises just announced that it plans to cut its dividend (in one year

Net Present Value, Mergers and Acquisitions
Net present Value, Mergers and acquisitions
FIN501 – Strategic Corporate Finance
Net present Value, Mergers and acquisitions To start I would like to explain the difference and meaning of the present value of the future cash flows
from an investment and the amount of investment. Present value of the expected cash flows is computed by discounting them at the required rate of
return. For example, an investment of $1,000 today at 10 percent will yield $1,100 at the end of the year; therefore, the present value of $1,100 at the
desired rate of return (10 percent) is $1,000. The amount of investment ($1,000 in this example) is deducted from this figure to arrive at net present
value which here is zero ($1,000–$1,000). A zero net... Show more content on Helpwriting.net ...
So fear was the motivating factor for not agreeing with a merger/acquisition by Google (Carlson, 2010). For their part, Google was excited to acquire
Groupon for the ability to tap into the potential for local advertising which they were not capturing through their own marketing efforts. Groupon has
a reputation for establishing and maintaining marketing relationships with their suppliers which is unmatched within the technology sector. Google
saw this as a potential for creating a huge revenue source from local advertisers, creating a new advertising source leading to new revenue, while
controlling costs for gaining this revenue, resulting in higher levels of performance, which should drive the stock price ever higher. The overall
result was that Google decided to go their own way, and established a new offering called "GOOGLE OFFERS" which is designed to compete
directly against Groupon. Thus far it has met with a bit of interest, and has had success to date (Kim, 2013), (Winkler, 2011).
The impact on Google shareholders Potential for the Google shareholders was an increase in appreciation of the stock which would have helped to
reach the forecast strike price of $1000/share sooner, than later. Moreover, it would have established Google as a continuing growth company, with new
acquisitions and new ideas designed to enhance their market position

Net Present Value and Business
IGNOU MBA MS – 04 Solved Assignments July 2011 Course Code:MS– 04 Course Title:Accounting and Finance for Managers Assignment
Code:MS–04/SEM – I /2011 Coverage:All Blocks Note: Answer all the questions and send them to the Coordinator of the Study Centre you are attached
with. 1.Discuss and explain the relevance of the following accounting concepts a)Business entity b)Money measurement c)Continuity d)Cost e)Accrual
f)Conservatism g)Materiality h)Consistency i)Periodicity Solution: FUNDAMENTAL CONCEPTS OF ACCOUNTING Accounting is the language
of business and it is used to communicate financial information. In order for that information to make sense, accounting is based on 12... Show more
content on Helpwriting.net ...
LLCs are similar to corporations, but can be taxed as a partnership. In California, the LLC can have either one owner or two. Regardless of the
number, these owners carry the legal title of "member." The LLC provides a shield for your personal assets just like a corporation. Partnerships In
my opinion, it is better to have died a small child then be in a partnership. Unfortunately, many business owners form partnerships and don 't even
know it. This occurs when they go into business with another person. If no business entity is formed, the law considers the business to be a
partnership and treats it accordingly. Partnerships are dangerous for one primary reason: a partnership does not provide any protection from liability
and, in many ways, invites personal liability. Under well–established law, most partnerships are classified as "general". This simply means that all the
partners are contributing to the administration and running of the partnership business. This classification can have grisly results. In a general
partnership, each partner is jointly liable for the debts of any other partner arising from the business. For instance, you and your partner go to a
business dinner with a client. Your partner has a drink and then a few more. They then get into an accident on the way home. Each of the partners is
liable for the damages claimed by the injured people. That means YOU! Even if you were not in the car, did not rent the car, never saw the

Net Present Value: The Advantages Of Net Present Value
Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital
investment to break down the profitability of a projected investment or project.
The following is the formula for calculating NPV :
A positive Net Present Valuepoint that the projected earnings generated by a project or investment (in present dollars) exceed the anticipated costs
(also in present dollars). Normally, a profitable investment has a positive NPV and negative NPV will result in net loss.
Decision rule – When there is a mutually exclusive project is to choose one with highest NPV (Acowtancy, 2015). The higher the positive NPV, the
more attractive the project (Thompson, August 2015). ... Show more content on Helpwriting.net ...
NPV also takes into account of time value of money and also based on cash flows, which are less subjective than profits (Keong, 2015). Another
benefits of NPV is that it is based on real cash flows and considers the whole life of the project (Acowtancy, 2015).
Disadvantages – It involves a lot of calculation which may be difficult for some managers. The discount rate and inflation rate is constant during
calculation where in actual, it may change due to economical factors.
Accounting rate of return (ARR)
Average rate of return also called as the Accounting rate of return, or ARR is a financial ratio used in capital investment. ARR calculates the return,
created from net income of the proposed capital investment. ARR will be in the form of percentage return. The following is the formula for calculating
ARR: Decision rule – The project is acceptable when the ARR is equal to or greater than the desired rate of return. When comparing investments,
people will look to the higher ARR, because the higher the ARR, the more attractive the investment.
Benefits – ARR can be calculated and understand easily. Most managers and accountants uses ARR because it is expressed in percentage terms that
they are familiar

Compare and contrast the internal rate of return (IRR) and...
The internal rate of return (IRR) and the net present value (NPV) techniques are 2 investment decision tools that satisfy the 2 major criteria for the
correct evaluation of capital projects. This criterion is that the techniques should incorporate the use of cash flows and the use of the time value of
money. This makes them viable techniques for evaluating investment proposals.
The Net Present Valueis one of the techniques that are used by firms when evaluating which investment proposals to take on board and which ones to
reject. The net present value is calculated by discounting all flows to the present and subtracting the present value of all inflows.
As cited by Petrochilos G 2004, the Net Present Value principle advises us to invest... Show more content on Helpwriting.net ...
Internal rate of return (IRR) is a rate of return on an investment. The IRR of an investment is the interest rate that will give it a net present value of zero.
The IRR is calculated by a trial and error processStarting with a guess at the IRR, r, the process is as follows:The NPV is calculated using r.
To find the internal rate of return, one needs to find the values of r that satisfies the following equation:YearCash
Flow0–1001+302+353+404+45Internal Rate of Return (IRR)IRR = r,IRR = 17.09%Net Present Value (NPV)Thus using r = IRR = 17.09%,If the NPV
is close to zero then r is the IRR.
If the NPV is positive r is increased.
If the NPV is negative r is decreased.
This technique looks for the interest rate that equals the present value of inflows and outflows.
The IRR technique use the accept/reject criteria of comparing the IRR with the cost of capital which is based on comparing the internal rate of return
to the cost of the capital of the project.
If the IRR is less than the capital then that project should be rejected because it is not very feasible. If the Internal Rate of Return is larger than the
capital required for the project, it should be accepted while if the IRR is just equal to the capital then the project could be considered because it is at

the very least earning its cost of capital and should therefore be accepted at the margin.
When evaluating any investment proposals, the NPV technique and the IRR technique usually provide

Net Present Value and Cash Flow
Corporate Financial Management Practice Mid–Semester Examination (Answers at back) Disclaimer: This practice exam covers a selection of the
types of questions that may be asked in the mid–semester exam, however it should not be taken as being exhaustive as to the topics that could be
included in the exam. Students should therefore not be surprised if other types of questions appear in the exam. 1. $200 invested today and earning 8
per cent per annum compounded semi–annually will grow to what amount at the end of three years? (A) (B) $251.94 (C) $380.75 (D) 2. $158.80
$253.06 Bill plans to fund his individual retirement account with the maximum contribution of $2,000 at the end of each year for the next... Show more
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(B) a parallel shift downward in the security market line. (C) a decrease in the slope of the security market line. (D) a parallel shift upward in the
security market line. 14. The market price of outstanding bond issues often varies from par because (A) (B) the market rate of interest has
changed. (C) the maturity date has changed. (D) 15. the coupon rate has changed. old bonds sells for less than new bonds. A firm has an expected
dividend next year of $1.20 per share, a zero growth rate of dividends, and a required return of 10 per cent per annum. The value of each of the firm 's
shares is (A) (B) $12 (C) $120 (D) 16. $10 $100 In the Gordon model, the value of ordinary shares is the (A) present value of a constant, growing
dividend stream. (B) actual amount each ordinary shareholder would expect to receive if the firm 's assets are sold, creditors and preference
shareholders are repaid, and any remaining money is divided among the ordinary shareholders. (C) present value of a non–growing dividend stream.
(D) net value of all assets which are liquidated for their exact accounting value. 17. A constant annual rate of dividend growth of 9 per cent is expected
on a particular firm's ordinary shares for an indefinite period into the future. The

Please compare the advantages and disadvantages of the...
Net present value is defined as the total present value (PV) of a time series of cash flows. It is a standard method for using the time value of moneyto
appraise long–term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in
present value terms, once financing charges are met. The advantages of the NPV are following; first, it tells whether the investment will increase the
firm's value. Also, it considers all the cash flows, time value of money and the risk of future cash flows through the cost of capital. Moreover, It will
give the correct decision advice assuming a perfect capital market. It will also give correct ranking for mutually exclusive projects. NPV gives... Show
The unmodified IRR method, as compared with the NPV method, will not show the superiority of any two mutually exclusive investments with
two different initial outlays. In such a case, an investment with lower IRR could have a higher NPV and therefore should be chosen by an
investor. In some cases where there are streams of positive and negative cash flows in an investment, the IRR method may yield more than one
IRR. This is not a disadvantage if the calculations are performed correctly. Profitability index identifies the relationship of investment to payoff of a
proposed project. The ratio is calculated by present value of future cash flows over present value of initial investment. Profitability Index is also
known as Profit Investment Ratio. The Profitability index tells whether an investment increases the firm's value. It considers all cash flows of the
project , time value of money and the risk of future cash flows through the cost of capital. It is useful in ranking and selecting projects when capital
is rationed. But it need require an estimate of the cost of capital in order to calculate the profitability index. It may not give the correct decision when
used to compare mutually exclusive projects. Moreover, it only used for divisible projects. The strategic values of projects are not considered, only
figures are dealt with not long term not short term. It limited use when protect have differing cash flow pattern and only limited

Net Present Value And Materials Price Variance

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