Compute IRR and NPV in Microsoft Excel
1.IRR Function
Description:
The Microsoft Excel IRR function returns the internal rate of return for a series of cash flows. The cash
flows must occur at regular intervals, but do not have to be the same amounts for each interval.
Syntax
The syntax for the IRR function in Microsoft Excel is:
IRR(range, [estimated_irr] )
Parameters or Arguments
range
A range of cells that represent the series of cash flows.
estimated_irr
Optional. It is your guess at the internal rate of return. If this parameter is omitted, it
assumes an estimated_irr of 0.1 or 10%
Example (as Worksheet Function)
Let's look at some Excel IRR function examples and explore how to use the IRR function as a
worksheet function in Microsoft Excel:
Based on the Excel spreadsheet above:
This first example returns an internal rate of return of 28%. It assumes that you start a
business at a cost of $7,500. You net the following income for the first four years: $3,000,
$5,000, $1,200, and $4,000.
This next example returns an internal rate of return of 5%. It assumes that you start a
business at a cost of $10,000. You net the following income for the first three years: $3,400,
$6,500, and $1,000.
=IRR(B1:B4)
Result: 5%
2.NPV Function
Description
The Microsoft Excel NPV function returns the net present value of an investment.
Syntax
The syntax for the NPV function in Microsoft Excel is:
NPV( discount_rate, value1, [value2, ... value_n] )
Parameters or Arguments
discount_rate
The discount rate for the period.
value1, value2, ... value_n
The future payments and income for the investment (ie: cash flows). There can be up
to 29 values entered.
Note
Microsoft Excel's NPV function does not account for the intial cash outlay, or may account for
it improperly depending on the version of Excel. However, there is a workaround.
This workaround requires that you NOT include the initial investment in the future
payments/income for the investment (ie: value1, value2, ... value_n), but instead, you need to
subtract from the result of the NPV function, the amount of the initial investment.
The workaround formula is also different depending on whether the cash flows occur at the
end of the period (EOP) or at the beginning of the period (BOP).
If the cash flows occur at the end of the period (EOP), you would use the following formula:
=NPV( discount_rate, value1, value2, ... value_n ) - Initial Investment
If the cash flows occur at the beginning of the period (BOP), ou would use the following
formula:
=NPV( discount_rate, value2, ... value_n ) - Initial Investment + value1
Example (as Worksheet Function)
Let's look at some NPV examples and explore how to use the NPV function as a worksheet
function in Microsoft Excel:
This first example returns a net present value of $3,457.19. It assumes that you pay $7,500
as an initial investment . You then receive the following in ...
Part ADiscount rate5CommentsPROJECT 1(Insulate OfficeYearTotal1.docxherbertwilson5999
Part ADiscount rate5%CommentsPROJECT 1
(Insulate OfficeYearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 2
(Mortgage payment)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 3
(Invest in business)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 4
(Savings - no investment)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROI
Part A
Cumulative discounted costs
Cumulative discounted benefits
Mortgage benefitYearMortgage value without investmentMortgage value with investementBenefit based on investment12345678910
SIT374 AND SIT764
PROJECT MANAGEMENT
Net Present Value
Net Present Value
The text gives an example of two projects that have
common positive cash flows after 5 years.
The text also notes “everyone understand a dollar
earned today is worth more tomorrow”. Do we
understand?
Net Present Value
Rationale.
If I spend $1000 today as opposed to in 5 years, I lose
the interest I would have earned on that money over
the 5 years.
If I don’t get paid on time, I lose the interest I should
have earned on the money whilst it wasn’t in my bank
account.
In short…
Hang onto money for a long as you can so you earn the
interest
Get money in as quick as you can so you earn the
interest
Net Present Value
Start with a new spreadsheet, preparing for the
benefits, costs and calculated cashflow for the
anticipated lifecycle of the product.
The discount date in a ‘real’ calculation would likely
come from a finance expert, but could be as simple
as the interest rate of borrowed money. However,
both projects will apply the same rate.
Net Present Value
Add in the anticipated earnings of the product or
project over the anticipated lifespan.
Also, add in the startup costs, and ongoing costs
of the project over the anticipated lifespan of the
project, considering support, maintenance, new
development etc
Net Present Value
As NPV is an analysis of cash flow, calculate the
anticipated cash flow on a yearly basis. A simple
calculation of benefits less costs to indicate the
net benefit in that year.
Net Present Value
NPV can then be calculated using the simple ‘NPV’
function in excel, using the values from your
cashflow fields and your discount rate.
1-Base-CaseTool KitChapter 11112118Note Calculations are automaMartineMccracken314
1-Base-CaseTool KitChapter 1111/21/18Note: Calculations are automatic, including for tables. This will make the calculations take longer to complete. You can disable automatic calculations for tables by following the steps shown here.Cash Flow Estimation and Risk AnalysisWorksheet 1-Base-CaseThis worksheet contains the base-case model. It calculates an expansion project's cash flows and performance measures using base-case, or most likely, values for the input variables. It also includes the basic analysis but with straight-line depreciation and bonus depreciation.Go to the menu "Files" at the top left of the menu bar.Select "Options" from the items in the first column.This will give you the screen shown below:The second worksheet (2-Sens) extends the basic model to include sensitivity analysis using Data Tables (we include a brief tutorial on the use of Data Tables). Worksheet 2-Sens also illustrates special cases of sensitivity analysis, including breakeven analysis, one-way data tables with multiple outputs, and two-way data tables.Worksheet 3a-Sens extends the basic model to include scenario analysis. Worksheet 3b-ScenMgr shows how to use Excel's Scenario Manager for scenario analysis.Worksheet 4-Sim extends the basic model to include simulation analysis. Worksheet 5-Replmt illustrates the analysis for a proposed cost-reducing replacement investment. Replacement decisions differ from expansion decisions because most of the cash flows are found by subtracting the old project's cash flows from those of the new project to calculate incremental cash flows for use in the analysis.Worksheet 6-DecTree extends the scenario analysis to examine two decision trees in which the decision is made in stages. The first one simply shows the situation where the firm can abandon the project if things are not working out and cash flows are negative. The second one involves a marketing study and a prototype of the final product designed to learn more about demand before deciding to go into full production.Worksheet Appendix 11-A provides depreciation tables as described in Appendix A of the textbook. It also shows examples using straight-line depreciation and bonus depreciation.11-1 Identifying Relevant Cash FlowsA proposal’s relevant project cash flows are the differences between the cash flows the firm will have if it implements the project versus the cash flows it will have if it rejects the project. These are called incremental cash flows.Choose "Formulas" in the first column.11-2 Analysis of an Expansion ProjectThis will give you the screen shown below.The figure below shows the inputs and key results of Project L (one of the projects whose cash flows are used in the previous chapter); the actual analysis is conducted further below in the worksheet. The values in the Inputs section are linked to the model, as are the values shown in Key Results. If you change any of the values in the Input Section, the model recalculate almost instantly, causing ch ...
1-Base-CaseTool KitChapter 11112118Note Calculations are automaAbbyWhyte974
1-Base-CaseTool KitChapter 1111/21/18Note: Calculations are automatic, including for tables. This will make the calculations take longer to complete. You can disable automatic calculations for tables by following the steps shown here.Cash Flow Estimation and Risk AnalysisWorksheet 1-Base-CaseThis worksheet contains the base-case model. It calculates an expansion project's cash flows and performance measures using base-case, or most likely, values for the input variables. It also includes the basic analysis but with straight-line depreciation and bonus depreciation.Go to the menu "Files" at the top left of the menu bar.Select "Options" from the items in the first column.This will give you the screen shown below:The second worksheet (2-Sens) extends the basic model to include sensitivity analysis using Data Tables (we include a brief tutorial on the use of Data Tables). Worksheet 2-Sens also illustrates special cases of sensitivity analysis, including breakeven analysis, one-way data tables with multiple outputs, and two-way data tables.Worksheet 3a-Sens extends the basic model to include scenario analysis. Worksheet 3b-ScenMgr shows how to use Excel's Scenario Manager for scenario analysis.Worksheet 4-Sim extends the basic model to include simulation analysis. Worksheet 5-Replmt illustrates the analysis for a proposed cost-reducing replacement investment. Replacement decisions differ from expansion decisions because most of the cash flows are found by subtracting the old project's cash flows from those of the new project to calculate incremental cash flows for use in the analysis.Worksheet 6-DecTree extends the scenario analysis to examine two decision trees in which the decision is made in stages. The first one simply shows the situation where the firm can abandon the project if things are not working out and cash flows are negative. The second one involves a marketing study and a prototype of the final product designed to learn more about demand before deciding to go into full production.Worksheet Appendix 11-A provides depreciation tables as described in Appendix A of the textbook. It also shows examples using straight-line depreciation and bonus depreciation.11-1 Identifying Relevant Cash FlowsA proposal’s relevant project cash flows are the differences between the cash flows the firm will have if it implements the project versus the cash flows it will have if it rejects the project. These are called incremental cash flows.Choose "Formulas" in the first column.11-2 Analysis of an Expansion ProjectThis will give you the screen shown below.The figure below shows the inputs and key results of Project L (one of the projects whose cash flows are used in the previous chapter); the actual analysis is conducted further below in the worksheet. The values in the Inputs section are linked to the model, as are the values shown in Key Results. If you change any of the values in the Input Section, the model recalculate almost instantly, causing ch ...
1. Payback Period and Net Present Value[LO1, 2] If a project with .docxpaynetawnya
1. Payback Period and Net Present Value[LO1, 2] If a project with conventional cash flows has a payback period less than the project’s life, can you definitively state the algebraic sign of the NPV? Why or why not? If you know that the discounted payback period is less than the project’s life, what can you say about the NPV? Explain.
Internal Rate of Return[LO5] Concerning IRR:
a. Describe how the IRR is calculated, and describe the information this measure provides about a sequence of cash flows. What is the IRR criterion decision rule?
b. What is the relationship between IRR and NPV? Are there any situations in which you might prefer one method over the other? Explain.
c. Despite its shortcomings in some situations, why do most financial managers use IRR along with NPV when evaluating projects? Can you think of a situation in which IRR might be a more appropriate measure to use than NPV? Explain.
14. Net Present Value[LO1] It is sometimes stated that “the net present value approach assumes reinvestment of the intermediate cash flows at the required return.” Is this claim correct? To answer, suppose you calculate the NPV of a project in the usual way. Next, suppose you do the following:
a. Calculate the future value (as of the end of the project) of all the cash flows other than the initial outlay assuming they are reinvested at the required return, producing a single future value figure for the project.
b. Calculate the NPV of the project using the single future value calculated in the previous step and the initial outlay. It is easy to verify that you will get the same NPV as in your original calculation only if you use the required return as the reinvestment rate in the previous step.
17. Comparing Investment Criteria Consider the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
If you apply the payback criterion, which investment will you choose? Why?
b. If you apply the discounted payback criterion, which investment will you choose? Why?
c. If you apply the NPV criterion, which investment will you choose? Why?
d. If you apply the IRR criterion, which investment will you choose? Why?
e. If you apply the profitability index criterion, which investment will you choose? Why?
5. Equivalent Annual Cost [LO4]
1. When is EAC analysis appropriate for comparing two or more projects?
2. Why is this method used?
3 .Are there any implicit assumptions required by this method that you find troubling? Explain.
6. Cash Flow and Depreciation [LO1] “When evaluating projects, we’re concerned with only the relevant incremental after tax cash flows. Therefore, because depreciation is a noncash expense, we should ignore its effects when evaluating projects.” Critically evaluate this statement.
QUESTION AND PROBLEMS
1. Relevant Cash Flows [LO1] Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5 ...
Mini Case112018Chapter 2 Mini CaseSituationJenny Cochran, a grad.docxpauline234567
Mini Case11/20/18Chapter 2 Mini CaseSituationJenny Cochran, a graduate of The University of Tennessee with 4 years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components.
During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.Computron's Balance Sheets (Millions of Dollars)20182019AssetsCash and equivalents$ 60$ 50Short-term investments10010Accounts receivable400520Inventories620820Total current assets$ 1,180$ 1,400Gross fixed assets$ 3,900$ 4,820Less: Accumulated depreciation1,0001,320Net fixed assets$ 2,900$ 3,500Total assets$ 4,080$ 4,900Liabilities and equityAccounts payable$ 300$ 400Notes payable50250Accruals200240Total current liabilities$ 550$ 890Long-term bonds8001,100Total liabilities$ 1,350$ 1,990Common stock1,0001,000Retained earnings1,7301,910Total equity$ 2,730$ 2,910Total liabilities and equity$ 4,080$ 4,900Computron's Income Statement (Millions of Dollars)20182019Net sales$ 5,500$ 6,000Cost of goods sold (Excluding depr. & amort.)4,3004,800Depreciation and amortizationa290320Other operating expenses350420Total operating costs$ 4,940$ 5,540Earnings before interest and taxes (EBIT)$ 560$ 460Less interest 68108Pre-tax earnings$ 492$ 352Taxes (25%)12388Net Income $ 369$ 264Notes:a Computron has no amortization charges.Other Data20182019Stock price$50.00$30.00Shares outstanding (millions)100100Common dividends (millions)$90$84Tax rate25%25%Weighted average cost of capital (WACC)10.00%10.00%Computron's Statement of Cash Flows (Millions of Dollars)
Bart Kreps: The statement of cash flows provides information about cash inflows and outflows during an accounting period.
2019Operating Activities Net Income before preferred dividends$ 264Noncash adjustments Depreciation and amortization320Due to changes in working capital Change in accounts receivable(120) Change in inventories(200) Change in accounts payable100 Change in accruals40Net cash provided by operating activities$ 404Investing activities Cash used to acquire fixed assets$ (920)
Bart Kreps: Make sure to add back annual Depreciation to Net PP&E.
Bart Kreps: The statement of cash flows provides information about cash inflows and outflows during an accounting period.
Change in short-term investments90Net cash provided by investing activities$ (830)Financing Activities Change in notes payable$ 200 Change in long-term debt300 Payment of cash dividends(84)Net cash provided by financing activities$ 416Net change in cash.
Part ADiscount rate5CommentsPROJECT 1(Insulate OfficeYearTotal1.docxherbertwilson5999
Part ADiscount rate5%CommentsPROJECT 1
(Insulate OfficeYearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 2
(Mortgage payment)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 3
(Invest in business)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROIPROJECT 4
(Savings - no investment)YearTotal12345678910CostsDiscount factorDiscounted costsCumulative discounted costsBenefitsDiscount factorDiscounted benefitsCumulative discounted benefitsCash flowDiscounted benefits - costsCumulative benefits - costsNPVROI
Part A
Cumulative discounted costs
Cumulative discounted benefits
Mortgage benefitYearMortgage value without investmentMortgage value with investementBenefit based on investment12345678910
SIT374 AND SIT764
PROJECT MANAGEMENT
Net Present Value
Net Present Value
The text gives an example of two projects that have
common positive cash flows after 5 years.
The text also notes “everyone understand a dollar
earned today is worth more tomorrow”. Do we
understand?
Net Present Value
Rationale.
If I spend $1000 today as opposed to in 5 years, I lose
the interest I would have earned on that money over
the 5 years.
If I don’t get paid on time, I lose the interest I should
have earned on the money whilst it wasn’t in my bank
account.
In short…
Hang onto money for a long as you can so you earn the
interest
Get money in as quick as you can so you earn the
interest
Net Present Value
Start with a new spreadsheet, preparing for the
benefits, costs and calculated cashflow for the
anticipated lifecycle of the product.
The discount date in a ‘real’ calculation would likely
come from a finance expert, but could be as simple
as the interest rate of borrowed money. However,
both projects will apply the same rate.
Net Present Value
Add in the anticipated earnings of the product or
project over the anticipated lifespan.
Also, add in the startup costs, and ongoing costs
of the project over the anticipated lifespan of the
project, considering support, maintenance, new
development etc
Net Present Value
As NPV is an analysis of cash flow, calculate the
anticipated cash flow on a yearly basis. A simple
calculation of benefits less costs to indicate the
net benefit in that year.
Net Present Value
NPV can then be calculated using the simple ‘NPV’
function in excel, using the values from your
cashflow fields and your discount rate.
1-Base-CaseTool KitChapter 11112118Note Calculations are automaMartineMccracken314
1-Base-CaseTool KitChapter 1111/21/18Note: Calculations are automatic, including for tables. This will make the calculations take longer to complete. You can disable automatic calculations for tables by following the steps shown here.Cash Flow Estimation and Risk AnalysisWorksheet 1-Base-CaseThis worksheet contains the base-case model. It calculates an expansion project's cash flows and performance measures using base-case, or most likely, values for the input variables. It also includes the basic analysis but with straight-line depreciation and bonus depreciation.Go to the menu "Files" at the top left of the menu bar.Select "Options" from the items in the first column.This will give you the screen shown below:The second worksheet (2-Sens) extends the basic model to include sensitivity analysis using Data Tables (we include a brief tutorial on the use of Data Tables). Worksheet 2-Sens also illustrates special cases of sensitivity analysis, including breakeven analysis, one-way data tables with multiple outputs, and two-way data tables.Worksheet 3a-Sens extends the basic model to include scenario analysis. Worksheet 3b-ScenMgr shows how to use Excel's Scenario Manager for scenario analysis.Worksheet 4-Sim extends the basic model to include simulation analysis. Worksheet 5-Replmt illustrates the analysis for a proposed cost-reducing replacement investment. Replacement decisions differ from expansion decisions because most of the cash flows are found by subtracting the old project's cash flows from those of the new project to calculate incremental cash flows for use in the analysis.Worksheet 6-DecTree extends the scenario analysis to examine two decision trees in which the decision is made in stages. The first one simply shows the situation where the firm can abandon the project if things are not working out and cash flows are negative. The second one involves a marketing study and a prototype of the final product designed to learn more about demand before deciding to go into full production.Worksheet Appendix 11-A provides depreciation tables as described in Appendix A of the textbook. It also shows examples using straight-line depreciation and bonus depreciation.11-1 Identifying Relevant Cash FlowsA proposal’s relevant project cash flows are the differences between the cash flows the firm will have if it implements the project versus the cash flows it will have if it rejects the project. These are called incremental cash flows.Choose "Formulas" in the first column.11-2 Analysis of an Expansion ProjectThis will give you the screen shown below.The figure below shows the inputs and key results of Project L (one of the projects whose cash flows are used in the previous chapter); the actual analysis is conducted further below in the worksheet. The values in the Inputs section are linked to the model, as are the values shown in Key Results. If you change any of the values in the Input Section, the model recalculate almost instantly, causing ch ...
1-Base-CaseTool KitChapter 11112118Note Calculations are automaAbbyWhyte974
1-Base-CaseTool KitChapter 1111/21/18Note: Calculations are automatic, including for tables. This will make the calculations take longer to complete. You can disable automatic calculations for tables by following the steps shown here.Cash Flow Estimation and Risk AnalysisWorksheet 1-Base-CaseThis worksheet contains the base-case model. It calculates an expansion project's cash flows and performance measures using base-case, or most likely, values for the input variables. It also includes the basic analysis but with straight-line depreciation and bonus depreciation.Go to the menu "Files" at the top left of the menu bar.Select "Options" from the items in the first column.This will give you the screen shown below:The second worksheet (2-Sens) extends the basic model to include sensitivity analysis using Data Tables (we include a brief tutorial on the use of Data Tables). Worksheet 2-Sens also illustrates special cases of sensitivity analysis, including breakeven analysis, one-way data tables with multiple outputs, and two-way data tables.Worksheet 3a-Sens extends the basic model to include scenario analysis. Worksheet 3b-ScenMgr shows how to use Excel's Scenario Manager for scenario analysis.Worksheet 4-Sim extends the basic model to include simulation analysis. Worksheet 5-Replmt illustrates the analysis for a proposed cost-reducing replacement investment. Replacement decisions differ from expansion decisions because most of the cash flows are found by subtracting the old project's cash flows from those of the new project to calculate incremental cash flows for use in the analysis.Worksheet 6-DecTree extends the scenario analysis to examine two decision trees in which the decision is made in stages. The first one simply shows the situation where the firm can abandon the project if things are not working out and cash flows are negative. The second one involves a marketing study and a prototype of the final product designed to learn more about demand before deciding to go into full production.Worksheet Appendix 11-A provides depreciation tables as described in Appendix A of the textbook. It also shows examples using straight-line depreciation and bonus depreciation.11-1 Identifying Relevant Cash FlowsA proposal’s relevant project cash flows are the differences between the cash flows the firm will have if it implements the project versus the cash flows it will have if it rejects the project. These are called incremental cash flows.Choose "Formulas" in the first column.11-2 Analysis of an Expansion ProjectThis will give you the screen shown below.The figure below shows the inputs and key results of Project L (one of the projects whose cash flows are used in the previous chapter); the actual analysis is conducted further below in the worksheet. The values in the Inputs section are linked to the model, as are the values shown in Key Results. If you change any of the values in the Input Section, the model recalculate almost instantly, causing ch ...
1. Payback Period and Net Present Value[LO1, 2] If a project with .docxpaynetawnya
1. Payback Period and Net Present Value[LO1, 2] If a project with conventional cash flows has a payback period less than the project’s life, can you definitively state the algebraic sign of the NPV? Why or why not? If you know that the discounted payback period is less than the project’s life, what can you say about the NPV? Explain.
Internal Rate of Return[LO5] Concerning IRR:
a. Describe how the IRR is calculated, and describe the information this measure provides about a sequence of cash flows. What is the IRR criterion decision rule?
b. What is the relationship between IRR and NPV? Are there any situations in which you might prefer one method over the other? Explain.
c. Despite its shortcomings in some situations, why do most financial managers use IRR along with NPV when evaluating projects? Can you think of a situation in which IRR might be a more appropriate measure to use than NPV? Explain.
14. Net Present Value[LO1] It is sometimes stated that “the net present value approach assumes reinvestment of the intermediate cash flows at the required return.” Is this claim correct? To answer, suppose you calculate the NPV of a project in the usual way. Next, suppose you do the following:
a. Calculate the future value (as of the end of the project) of all the cash flows other than the initial outlay assuming they are reinvested at the required return, producing a single future value figure for the project.
b. Calculate the NPV of the project using the single future value calculated in the previous step and the initial outlay. It is easy to verify that you will get the same NPV as in your original calculation only if you use the required return as the reinvestment rate in the previous step.
17. Comparing Investment Criteria Consider the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
If you apply the payback criterion, which investment will you choose? Why?
b. If you apply the discounted payback criterion, which investment will you choose? Why?
c. If you apply the NPV criterion, which investment will you choose? Why?
d. If you apply the IRR criterion, which investment will you choose? Why?
e. If you apply the profitability index criterion, which investment will you choose? Why?
5. Equivalent Annual Cost [LO4]
1. When is EAC analysis appropriate for comparing two or more projects?
2. Why is this method used?
3 .Are there any implicit assumptions required by this method that you find troubling? Explain.
6. Cash Flow and Depreciation [LO1] “When evaluating projects, we’re concerned with only the relevant incremental after tax cash flows. Therefore, because depreciation is a noncash expense, we should ignore its effects when evaluating projects.” Critically evaluate this statement.
QUESTION AND PROBLEMS
1. Relevant Cash Flows [LO1] Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5 ...
Mini Case112018Chapter 2 Mini CaseSituationJenny Cochran, a grad.docxpauline234567
Mini Case11/20/18Chapter 2 Mini CaseSituationJenny Cochran, a graduate of The University of Tennessee with 4 years of experience as an equities analyst, was recently brought in as assistant to the chairman of the board of Computron Industries, a manufacturer of computer components.
During the previous year, Computron had doubled its plant capacity, opened new sales offices outside its home territory, and launched an expensive advertising campaign. Cochran was assigned to evaluate the impact of the changes. She began by gathering financial statements and other data.Computron's Balance Sheets (Millions of Dollars)20182019AssetsCash and equivalents$ 60$ 50Short-term investments10010Accounts receivable400520Inventories620820Total current assets$ 1,180$ 1,400Gross fixed assets$ 3,900$ 4,820Less: Accumulated depreciation1,0001,320Net fixed assets$ 2,900$ 3,500Total assets$ 4,080$ 4,900Liabilities and equityAccounts payable$ 300$ 400Notes payable50250Accruals200240Total current liabilities$ 550$ 890Long-term bonds8001,100Total liabilities$ 1,350$ 1,990Common stock1,0001,000Retained earnings1,7301,910Total equity$ 2,730$ 2,910Total liabilities and equity$ 4,080$ 4,900Computron's Income Statement (Millions of Dollars)20182019Net sales$ 5,500$ 6,000Cost of goods sold (Excluding depr. & amort.)4,3004,800Depreciation and amortizationa290320Other operating expenses350420Total operating costs$ 4,940$ 5,540Earnings before interest and taxes (EBIT)$ 560$ 460Less interest 68108Pre-tax earnings$ 492$ 352Taxes (25%)12388Net Income $ 369$ 264Notes:a Computron has no amortization charges.Other Data20182019Stock price$50.00$30.00Shares outstanding (millions)100100Common dividends (millions)$90$84Tax rate25%25%Weighted average cost of capital (WACC)10.00%10.00%Computron's Statement of Cash Flows (Millions of Dollars)
Bart Kreps: The statement of cash flows provides information about cash inflows and outflows during an accounting period.
2019Operating Activities Net Income before preferred dividends$ 264Noncash adjustments Depreciation and amortization320Due to changes in working capital Change in accounts receivable(120) Change in inventories(200) Change in accounts payable100 Change in accruals40Net cash provided by operating activities$ 404Investing activities Cash used to acquire fixed assets$ (920)
Bart Kreps: Make sure to add back annual Depreciation to Net PP&E.
Bart Kreps: The statement of cash flows provides information about cash inflows and outflows during an accounting period.
Change in short-term investments90Net cash provided by investing activities$ (830)Financing Activities Change in notes payable$ 200 Change in long-term debt300 Payment of cash dividends(84)Net cash provided by financing activities$ 416Net change in cash.
Capital Budgeting - With Real World Examplessunil Kumar
Capital budgeting is the planning process used to determine whether an organizations long term investments such as new machinery, replacement of machinery, new plants, new products, and research development projects can be done using the firms capitalization structures (debt, equity or retained earnings) to bring profit as well as to increase the value of the firm to the shareholders.
Accrual Accounting And Valuation: Pricing Book ValueRo'ya Abd Elhafez
This chapter has outlined an accrual accounting valuation model that can be applied to
equities, projects, and strategies. The model utilizes information from the balance sheet and
calculates the difference between balance sheet value and intrinsic value from forecasts of
earnings and book values that will be reported in future forecasted income statements and
balance sheets.
Sheet4Assignment 1 LASA # 2—Capital Budgeting Techniques
Sheet1
Solution
:-A) Computation of WACC:-Cost of equity (Ke) will be calculated using dividend discount model which is as under:-Price of share (P0) = D1/(Ke-g)Ke = (D1/(P0*(1-f))) + gWhere,D1 = D0*(1+g)F = Flotation costKe = ((2.50*(1+6%))/(50*(1-10%))) + 6%Ke = 11.89%i) Equity financing and debt financing are two different sources of financing being used by the organizations to procure funds. Equity and debt are two different sources of financing, equity financing represents internal source of finance whereas debt financing represent external source of finance. Mixture of both is always used by the business organizations to procure funds and is most commonly known as target ratio or capital structure ratio. This ration varies from industry to industry and company and company depending upon various circumstances, equity financing can be raised only through issuing shares in market by the help of initial public offer whereas debt financing can be raise from many sources such as bonds, long term loans, money market instruments etc.Equity Financing has following advantages:1. The total cash flows generated can be used solely for investment purpose, rather than paying back the investors.2. Funds can be raised in shorter time as compared to other sources of funds.However, in equity financing, dilution of ownership easily occurs and more investors can lead to loss of Control.Cost of debt (Kd) will be calculated as follows:-Kd = Market rate of deb*(1-tax rate)Kd = 5%*(1-35%)Kd = 3.25%Debt is a more common source of finance used by most of the organizations, the reason for the same is as follows:-a. Debt is cheaper source of finance as compared to equity the reason being the cost associated with issuing the common stock like. Underwriters commission, legal expenses, various registration charges, issuing of prospectus, printing of various documents etc.b. Debt financing provide leverage to the company which will increase the Earning per Share (EPS) which in turn leads to increase in market value of share, this helps organization to maximize its market capitalization.However, if the expansion venture does not work in favour of the company, then these obligations of repayment of principal and interest may turnout to be a burden to the company. WACC = (Ke*We) + (Kd*Wd)WACC = (11.89%*70%) + (3.25%*30%)WACC = 9.30%B) Computation of NPV of project A:-Depreciation = Cost of the asset – salvage value Life of the asset = 1,500,000/ 3 = 500,000Calculation of cash flows:Revenue – 1,200,000Less Cost – 600,000Less Depreciation – 500,000Profit - 100,000Less taxes (35%) 35,000Profit after taxes .
Option #2Researching a Leader Complete preliminary rese.docxmccormicknadine86
Option #2:
Researching a Leader
Complete preliminary research on the Internet and/or using online library databases. Compose a 1 PAGE summary of sources and an overview of each source.
Post any questions or comments about the content or requirements of the Portfolio Project to the questions thread in the Discussion Forum.
.
Option 1 ImperialismThe exploitation of colonial resources.docxmccormicknadine86
Option 1: Imperialism
The exploitation of colonial resources and indigenous labor was one of the key elements in the success of imperialism. Such exploitation was a result of the prevalent ethnocentrism of the time and was justified by the unscientific concept of social Darwinism, which praised the characteristics of white Europeans and inaccurately ascribed negative characteristics to indigenous peoples. A famous poem of the time by Rudyard Kipling, "White Man's Burden," called on imperial powers, and particularly the U.S., at whom the poem was directed, to take up the mission of civilizing these "savage" peoples.
Read the poem at the following link:
Link (website):
White Man's Burden (Links to an external site.)
(Rudyard Kipling)
After reading the poem, address the following in a case study analysis:
Select a specific part of the world (a country), and examine imperialism in that country. What was the relationship between the invading country and the native people? You can select from these examples or choose your own:
Belgium & Africa
Britain & India
Germany & Africa
France & Africa
Apply social Darwinism to this specific case.
Analyze the motivations of the invading country?
How did ethnocentrism manifest in their interactions?
How does Kipling's poem apply to your specific example? You can quote lines for comparison.
.
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Capital Budgeting - With Real World Examplessunil Kumar
Capital budgeting is the planning process used to determine whether an organizations long term investments such as new machinery, replacement of machinery, new plants, new products, and research development projects can be done using the firms capitalization structures (debt, equity or retained earnings) to bring profit as well as to increase the value of the firm to the shareholders.
Accrual Accounting And Valuation: Pricing Book ValueRo'ya Abd Elhafez
This chapter has outlined an accrual accounting valuation model that can be applied to
equities, projects, and strategies. The model utilizes information from the balance sheet and
calculates the difference between balance sheet value and intrinsic value from forecasts of
earnings and book values that will be reported in future forecasted income statements and
balance sheets.
Sheet4Assignment 1 LASA # 2—Capital Budgeting Techniques
Sheet1
Solution
:-A) Computation of WACC:-Cost of equity (Ke) will be calculated using dividend discount model which is as under:-Price of share (P0) = D1/(Ke-g)Ke = (D1/(P0*(1-f))) + gWhere,D1 = D0*(1+g)F = Flotation costKe = ((2.50*(1+6%))/(50*(1-10%))) + 6%Ke = 11.89%i) Equity financing and debt financing are two different sources of financing being used by the organizations to procure funds. Equity and debt are two different sources of financing, equity financing represents internal source of finance whereas debt financing represent external source of finance. Mixture of both is always used by the business organizations to procure funds and is most commonly known as target ratio or capital structure ratio. This ration varies from industry to industry and company and company depending upon various circumstances, equity financing can be raised only through issuing shares in market by the help of initial public offer whereas debt financing can be raise from many sources such as bonds, long term loans, money market instruments etc.Equity Financing has following advantages:1. The total cash flows generated can be used solely for investment purpose, rather than paying back the investors.2. Funds can be raised in shorter time as compared to other sources of funds.However, in equity financing, dilution of ownership easily occurs and more investors can lead to loss of Control.Cost of debt (Kd) will be calculated as follows:-Kd = Market rate of deb*(1-tax rate)Kd = 5%*(1-35%)Kd = 3.25%Debt is a more common source of finance used by most of the organizations, the reason for the same is as follows:-a. Debt is cheaper source of finance as compared to equity the reason being the cost associated with issuing the common stock like. Underwriters commission, legal expenses, various registration charges, issuing of prospectus, printing of various documents etc.b. Debt financing provide leverage to the company which will increase the Earning per Share (EPS) which in turn leads to increase in market value of share, this helps organization to maximize its market capitalization.However, if the expansion venture does not work in favour of the company, then these obligations of repayment of principal and interest may turnout to be a burden to the company. WACC = (Ke*We) + (Kd*Wd)WACC = (11.89%*70%) + (3.25%*30%)WACC = 9.30%B) Computation of NPV of project A:-Depreciation = Cost of the asset – salvage value Life of the asset = 1,500,000/ 3 = 500,000Calculation of cash flows:Revenue – 1,200,000Less Cost – 600,000Less Depreciation – 500,000Profit - 100,000Less taxes (35%) 35,000Profit after taxes .
Option #2Researching a Leader Complete preliminary rese.docxmccormicknadine86
Option #2:
Researching a Leader
Complete preliminary research on the Internet and/or using online library databases. Compose a 1 PAGE summary of sources and an overview of each source.
Post any questions or comments about the content or requirements of the Portfolio Project to the questions thread in the Discussion Forum.
.
Option 1 ImperialismThe exploitation of colonial resources.docxmccormicknadine86
Option 1: Imperialism
The exploitation of colonial resources and indigenous labor was one of the key elements in the success of imperialism. Such exploitation was a result of the prevalent ethnocentrism of the time and was justified by the unscientific concept of social Darwinism, which praised the characteristics of white Europeans and inaccurately ascribed negative characteristics to indigenous peoples. A famous poem of the time by Rudyard Kipling, "White Man's Burden," called on imperial powers, and particularly the U.S., at whom the poem was directed, to take up the mission of civilizing these "savage" peoples.
Read the poem at the following link:
Link (website):
White Man's Burden (Links to an external site.)
(Rudyard Kipling)
After reading the poem, address the following in a case study analysis:
Select a specific part of the world (a country), and examine imperialism in that country. What was the relationship between the invading country and the native people? You can select from these examples or choose your own:
Belgium & Africa
Britain & India
Germany & Africa
France & Africa
Apply social Darwinism to this specific case.
Analyze the motivations of the invading country?
How did ethnocentrism manifest in their interactions?
How does Kipling's poem apply to your specific example? You can quote lines for comparison.
.
Option Wireless LTD v. OpenPeak, Inc.Be sure to save an elec.docxmccormicknadine86
Option Wireless LTD v. OpenPeak, Inc.
Be sure to save an electronic copy of your answers before submitting it to Ashworth College for grading. Unless otherwise stated, you should answer in complete sentences, and be sure to use correct English, spelling, and grammar. Sources must be cited in APA format.
Your response should be a minimum of four (4) double-spaced pages; refer to the Length and Formatting instructions below for additional details.
In complete sentences respond to the following prompts:
Summarize the facts of the case;
Identify the parties and explain each party’s position;
Outline the case’s procedural history including any appeals;
What is the legal issue in question in this case?
How did the court rule on the legal issue of this case?
What facts did the court find to be most important in making its decision?
Respond to the following questions:
Are there any situations in which it might be a good idea to include additional or different terms in the “acceptance” without making the acceptance expressly conditional on assent to the additional or different terms?
Under what conditions can a contract be formed by the parties’ conduct? Why wasn’t the conduct of the parties here used as the basis for a contract?
Do you agree or disagree with the court’s decision? Provide an explanation for your reasoning either agree or disagree.
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA CASE NO. 12-80165-CIV-MARRA
OPTION WIRELESS, LTD., an Irish limited liability company, Plaintiff, v. OPENPEAK, INC., a Delaware corporation, Defendant. ______________________________/
OPINION AND ORDER
THIS CAUSE is before the Court upon Plaintiff/Counter-Defendant’s Motion to Dismiss Defendant/Counter-Plaintiff’s Counterclaim (DE 6). Counter-Plaintiff OpenPeak Inc. filed its 1 Memorandum in Opposition (DE 8). Counter-Defendant Option Wireless, Ltd, replied. (DE 12). The Court has carefully considered the briefs ofthe parties and is otherwise fully advised in the premises. I. Introduction2 In July 2010, Counter-Plaintiff OpenPeak Inc. was producing a computer tablet product for AT&T. (DE 4 ¶ 5). Seeking embedded wireless data modules for the tablet, Counter-Plaintiff submitted a purchase order to Counter-Defendant Option Wireless, Ltd, for 12,300 units of the modules at the price of $848,700.00. (DE 4 ¶ 4). Section 9 of the purchase order, labeled “BUYER’S TERMS AND CONDITIONS,” provided that [a]ll purchase orders and sales are made only upon these terms and conditions and those on the front of this document. This document, and not any quotation, invoice, or other Seller document (which, if construed to be an offer is hereby rejected), will Option Wireless, Ltd. v. OpenPeak, Inc. Doc. 19 Dockets.Justia.com 2 be deemed an offer or an appropriate counter-offer and is a rejection of any other terms or conditions. Seller, byaccepting any orders or deliverin.
Option A Land SharkWhen is a shark just a shark Consider the.docxmccormicknadine86
Option A: Land Shark
When is a shark just a shark? Consider the movie
Jaws
. What could the shark symbolize in our culture, society, or collective human mythology other than a man-eating fish? Why? Support your answer.
Next, think about a theatrical staging of
Jaws
. Describe the artistic choices you would make to bring
Jaws
the movie to Broadway. What genre would you choose? Describe at least three other elements of production and how you would approach them in your staging of
Jaws
as a stage play or musical.
Create
a response to these concepts in one of the following formats:
350- to 700-word paper
Apply
appropriate APA formatting.
.
Option 3 Discuss your thoughts on drugs and deviance. Do you think .docxmccormicknadine86
Option 3: Discuss your thoughts on drugs and deviance. Do you think using drugs is deviant behavior? Why do you think alcohol and tobacco are legal drugs and their use is not considered deviant when they are addictive, physically harmful, and socially disruptive?
No quotes or references needed.
.
OPTION 2 Can we make the changes we need to make After the pandemi.docxmccormicknadine86
OPTION 2: Can we make the changes we need to make? After the pandemic, we are in a time of significant upheaval and transition. We are all more keenly aware that economic shifts and transformations can happen suddenly and dramatically. As the World shut itself down in March 2020, it makes us all aware that we can change behavior globally and as a matter of will. In the U.S., people began to quarantine themselves ahead of government action more often than as a result of government mandates. Write a cohesive 1-2 page single-spaced document that answers the following questions.
2a. Reflecting on the profound changes we have all seen in the past year, how does that change your views regarding what might be possible with regard to energy use, carbon reductions, or other major transformations that might be needed to impact the type of climate change Earth has been experiencing.
2b. Reflect on the type of transformations that would be involved to address global warming. Now that you have seen the recent major transformations, does this make you believe that global warming threats can prompt the type of major economic and industrial changes needed to reduce the impacts that have been anticipated with increasing climate changes?
2c. What are the "experts" saying about the possibility of these transformations in light of what they have seen during the pandemic? Are researchers more or less optimistic about our global ability to reduce green house gases and control climate change after seeing the impact of the pandemic? Be sure to include REFERENCES both at the end of the text and in the text, like (Author, year)
.
Option 1 You will create a PowerPoint (or equivalent) of your p.docxmccormicknadine86
Option 1: You will create a PowerPoint (or equivalent) of your presentation and add voice over.
Option 2: If you are unable to add voice over to your PowerPoint, you will create a PowerPoint (or equivalent) of your presentation. Next, you will use
Screencast-o-
Matic
(or a similar program) to create a video recording of your screen and voice as your present the information. Third, you will upload the video presentation to
YouTube
so your instructor can view it. If you choose this option, you will submit your article as well as the PowerPoint (or equivalent) file and the link to the YouTube presentation to complete this assignment.
Guidelines:
The presentation must include both audio (your voice explaining the information) and visual (PowerPoint presentation including text and/or images). Videos should not be used within the presentation.
The presentation should include the following three aspects:
An overview of your specific topic and its importance and application in current society. Include historical information as appropriate to understand your topic.
Identification, discussion, and
critical evaluation
of the most frequently used assessment instruments related to your topic. Include the typical settings and purposes for which assessment instruments are used.
Discussion of the ethical, cultural, and societal issues concerning the use of psychological tests and assessment as related to your topic.
The presentation must be 15 minutes long (no more than 20).
The presentation must include information from at least 10 scholarly sources (if used, the course textbook does not count as one of these 10 sources).
APA style citations should be used within the presentation. A reference section (in APA style) should appear at the end of the presentation.
Resources:
.
Option A Description of Dance StylesSelect two styles of danc.docxmccormicknadine86
Option A: Description of Dance Styles
Select
two styles of dance, such as ballet, modern dance, or folk dance.
Describe
each style of dance, and
include
the following:
History and development of the style
Discussion of your understanding of the use of line, form, repetition, and rhythm in each piece
Description of what the movements of both styles communicate to you in terms of mood
Description of how artistic choice can affect the viewer in the selected style
Submit
your assignment in one of the following formats:
700- to 1,050-word paper
.
Option #2Provide several slides that explain the key section.docxmccormicknadine86
Option #2
Provide several slides that explain the key sections of your strategy you will use in the final Portfolio Project. Provide section headers and a brief description of each.
FINAL PROJECT GUIDE
In a 6- to 10-page paper, as the local Union President, design a managing union handbook for union relationship building and a process that favors union employees as well as identifying key components of the bargaining process that can easily be sold to your union members. Apply theory and design systems and policies throughout your work covering:
Contextual factors (historical and legislative) that have impacted and still impact the union environment;
policies that create a more sustainable union model;
management strategy for union collective bargaining that includes: innovative wage, benefit, and non-wage factors; and
employee engagement and involvement strategies that take into consideration the diverse and changing labor force.
.
Option 2 Slavery vs. Indentured ServitudeExplain how and wh.docxmccormicknadine86
Option 2: Slavery vs. Indentured Servitude
Explain how and why slavery developed in the American colonies.
Describe in what ways the practice of slavery was different between each colonial region in British North America.
Analyze the differences between slaves and indentured servants.
Writing Requirements (APA format)
Length: 1-2 pages (not including title page or references page)
Use standard essay writing process by including an introduction, body paragraphs, and a conclusion.
1-inch margins
Double spaced
12-point Times New Roman font
Title page
References page (minimum of 1 scholarly source)
No abstract is required
In-text citations that correspond with your end references
.
Option 2 ArtSelect any 2 of works of art about the Holocaus.docxmccormicknadine86
Option 2: Art
Select any 2 of works of art about the Holocaust. You can select from the following list or conduct additional research on Holocaust art. Make sure to get approval from your instructor if you are selecting something not on the list. Click on the link to see the list:
Link: List of Artists/Artworks
Write an analysis of each artwork, including the following information:
Identify the title, artist, date completed, and medium used.
Explain the content of the artwork - what do the images show?
How does the artwork relate to the bigger picture of the Holocaust?
How effective is the artwork in relating the Holocaust to viewers?
LIST OF ARTISTS AND ARTWORK
Morris Kestelman:
Lama Sabachthani [Why Have You Forsaken Me?]
George Mayer-Marton:
Women with Boudlers
Bill Spira:
Prisoners Carrying Cement
Jan Hartman:
Death March (Czechowice-Bielsko, January 1945)
Edgar Ainsworth:
Belsen
Leslie Cole:
One of the Death Pits, Belsen. SS Guards Collecting Bodies
Doris Zinkeisen:
Human Laundry, Belsen: April 1945
Eric Taylor:
A Young Boy from Belsen Concentration Camp
Mary Kessell:
Notes from Belsen Camp
Edith Birkin:
The Death Cart - Lodz Ghetto
Shmuel Dresner:
Benjamin
Roman Halter:
Mother with Babies
Leo Breuer:
Path Between the Barracks, Gurs Camp
Leo (Lev) Haas:
Transport Arrival, Theresienstadt Ghetto
Jacob Lipschitz:
Beaten (My Brother Gedalyahu)
Norbert Troller:
Terezin
Anselm Kiefer:
Sternenfall
.
Option #1 Stanford University Prison Experiment Causality, C.docxmccormicknadine86
Option #1:
Stanford University Prison Experiment: Causality, Controlling Patterns, and Growth Mode
Revisit Philip Zimbardo's (1971) Stanford University Prison Experiment. Analyze the experiment in terms of causality, controlling patterns, and its growth mode.
What lessons can be learned from this experiment that can be generalized to business social systems, such as organizational design/organizational structures?
Your well-written paper should meet the following requirements:
· Be 5 pages in length.
· Be formatted according to APA
· Include at least five scholarly or peer-reviewed articles
· Include a title page, section headers, introduction, conclusion, and references page.
Reference:
Revisiting the Stanford Prison Experiment: a Lesson in the Power of Situation
~~~~~~~~
BY THE 1970s, psychologists had done a series of studies establishing the social power of groups. They showed, for example, that groups of strangers could persuade people to believe statements that were obviously false. Psychologists had also found that research participants were often willing to obey authority figures even when doing so violated their personal beliefs. The Yale studies by Stanley Milgram in 1963 demonstrated that a majority of ordinary citizens would continually shock an innocent man, even up to near-lethal levels, if commanded to do so by someone acting as an authority. The "authority" figure in this case was merely a high-school biology teacher who wore a lab coat and acted in an official manner. The majority of people shocked their victims over and over again despite increasingly desperate pleas to stop.
In my own work, I wanted to explore the fictional notion from William Golding's Lord of the Flies about the power of anonymity to unleash violent behavior. In one experiment from 1969, female students who were made to feel anonymous and given permission for aggression became significantly more hostile than students with their identities intact. Those and a host of other social-psychological studies were showing that human nature was more pliable than previously imagined and more responsive to situational pressures than we cared to acknowledge. In sum, these studies challenged the sacrosanct view that inner determinants of behavior--personality traits, morality, and religious upbringing--directed good people down righteous paths.
Missing from the body of social-science research at the time was the direct confrontation of good versus evil, of good people pitted against the forces inherent in bad situations. It was evident from everyday life that smart people made dumb decisions when they were engaged in mindless groupthink, as in the disastrous Bay of Pigs invasion by the smart guys in President John F. Kennedy's cabinet. It was also clear that smart people surrounding President Richard M. Nixon, like Henry A. Kissinger and Robert S. McNamara, escalated the Vietnam War when they knew, and later admitted, it was not winnable. They were .
Option A Gender CrimesCriminal acts occur against individu.docxmccormicknadine86
Option A: Gender Crimes
Criminal acts occur against individuals because of gender – some of these are labeled as hate crimes in the U.S. (consider cases of violence against transgendered and homosexual individuals) and others occur across cultures. Choose two other types of “gender crimes” and discuss what these acts reveal about deep-seated cultural values and beliefs. One possibility is to examine bride burning or dowry death in India.
Submit a paper (750-1250 words) that explores gender crimes. Provide at least three references cited within the text and listed in the references section.
.
opic 4 Discussion Question 1 May students express religious bel.docxmccormicknadine86
opic 4: Discussion Question 1
May students express religious beliefs in class discussion or assignments or engage in prayer in the classroom? What are some limitations? Support your position with examples from case law, the U.S. Constitution, or other readings.
Topic 4: Discussion Question 2
Do all student-led religious groups have an absolute right to meet at K-12 schools? If not, discuss one limitation under the Equal Access Act. May a teacher be a sponsor of the club? Can the teacher participate in its activities? Why or why not? Support your position with examples from case law, the U.S. Constitution, or other readings.
.
Option 1Choose a philosopher who interests you. Research that p.docxmccormicknadine86
Option 1:
Choose a philosopher who interests you. Research that philosopher, detailing how they developed their ideas and the importance of those ideas to the progress of philosophy and human understanding. Keep in mind that you should be focusing on their philosophy, not simply their biography, although some basic details of their life not related to philosophy may be needed, especially when it involves experiences that influenced their thinking.
Option 2:
Look at a specific Philosophical movement. Explain the ideas important to that movement (such as existentialism and positivism) and the influence they had. I am pretty flexible on what you can do with this one, so if you have an idea, don’t hesitate to ask!
Requirements
The typed body of your paper must be a minimum of 1500 words.
It should be typed, 12 point, double spaced. A minimum of three sources must be used,
.
Option #1The Stanford University Prison Experiment Structu.docxmccormicknadine86
Option #1:
The Stanford University Prison Experiment: Structure, Behavior, and Results
Philip Zimbardo’s Stanford University Prison Experiment could be described as a system whose systemic properties enabled the behaviors of the system's actors, leading to disturbing results.
Analyze the situation. What were the key elements of the system? How did the system operate? Why did the participants behave as they did? What lessons can be learned from this experiment about systems in relation to management?
Your well-written paper should meet the following requirements:
Be six pages in length.
Be formatted according to the APA
Include at least seven scholarly or peer-reviewed articles.
Include a title page, section headers, introduction, conclusion, and references page.
Reference:
Zimbardo, P. G. (2007).
Revisiting the Stanford prison experiment: A lesson in the power of situation (Links to an external site.)
.
Chronicle of Higher Education, 53(
30), B6.
BY THE 1970s, psychologists had done a series of studies establishing the social power of groups. They showed, for example, that groups of strangers could persuade people to believe statements that were obviously false. Psychologists had also found that research participants were often willing to obey authority figures even when doing so violated their personal beliefs. The Yale studies by Stanley Milgram in 1963 demonstrated that a majority of ordinary citizens would continually shock an innocent man, even up to near-lethal levels, if commanded to do so by someone acting as an authority. The "authority" figure in this case was merely a high-school biology teacher who wore a lab coat and acted in an official manner. The majority of people shocked their victims over and over again despite increasingly desperate pleas to stop.
In my own work, I wanted to explore the fictional notion from William Golding's Lord of the Flies about the power of anonymity to unleash violent behavior. In one experiment from 1969, female students who were made to feel anonymous and given permission for aggression became significantly more hostile than students with their identities intact. Those and a host of other social-psychological studies were showing that human nature was more pliable than previously imagined and more responsive to situational pressures than we cared to acknowledge. In sum, these studies challenged the sacrosanct view that inner determinants of behavior--personality traits, morality, and religious upbringing--directed good people down righteous paths.
Missing from the body of social-science research at the time was the direct confrontation of good versus evil, of good people pitted against the forces inherent in bad situations. It was evident from everyday life that smart people made dumb decisions when they were engaged in mindless groupthink, as in the disastrous Bay of Pigs invasion by the smart guys in President John F. Kennedy's cabinet. It was also clear that smart people su.
Open the file (Undergrad Reqt_Individual In-Depth Case Study) for in.docxmccormicknadine86
Open the file (Undergrad Reqt_Individual In-Depth Case Study) for instruction which is
blue highlighted
and I already
highlighted yellow
for the section that you need to answer which is
SECTION 2.
I
uploaded 2 articles that you need to read to answer the questions
and Pay attention to (Individual In-Depth Case Study Rubric).
.
onsider whether you think means-tested programs, such as the Tem.docxmccormicknadine86
onsider whether you think means-tested programs, such as the Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), and Supplemental Security Income (SSI), create dependency among its recipients. Then, think about how the potential perception of dependency might contribute to the stigma surrounding welfare programs. Finally, reflect on the perceptions you might have regarding individuals who receive means-tested welfare and how that perception might affect your work with clients.
By Day 4
Post
an explanation of whether means-tested programs (TANF, SNAP, and SSI) create dependency. Then, explain how the potential perception of dependency might contribute to the stigma surrounding welfare programs. Finally, explain the perceptions you have regarding people who receive means-tested welfare and how that perception might affect your work with clients.
Support your post with specific references to the resources. Be sure to provide full APA citations for
.
Operations security - PPT should cover below questions (chapter 1 to 6)
Compare & Contrast access control in relations to risk, threat and vulnerability.
Research and discuss how different auditing and monitoring techniques are used to identify & protect the system against network attacks.
Explain the relationship between access control and its impact on CIA (maintaining network confidentiality, integrity and availability).
Describe access control and its level of importance within operations security.
Argue the need for organizations to implement access controls in relations to maintaining confidentiality, integrity and availability (e.g., Is it a risky practice to store customer information for repeat visits?)
Describe the necessary components within an organization's access control metric.
Power Point Presentation
7 - 10 slides total (
does not include title or summary slide
)
Try using the 6×6 rule to keep your content concise and clean looking. The 6×6 rule means a maximum of six bullet points per slide and six words per bullet point
Keep the colors simple
Use charts where applicable
Use notes section of slide
Include transitions
Include use of graphics / animations
.
Palestine last event orientationfvgnh .pptxRaedMohamed3
An EFL lesson about the current events in Palestine. It is intended to be for intermediate students who wish to increase their listening skills through a short lesson in power point.
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
Instructions for Submissions thorugh G- Classroom.pptxJheel Barad
This presentation provides a briefing on how to upload submissions and documents in Google Classroom. It was prepared as part of an orientation for new Sainik School in-service teacher trainees. As a training officer, my goal is to ensure that you are comfortable and proficient with this essential tool for managing assignments and fostering student engagement.
Model Attribute Check Company Auto PropertyCeline George
In Odoo, the multi-company feature allows you to manage multiple companies within a single Odoo database instance. Each company can have its own configurations while still sharing common resources such as products, customers, and suppliers.
Embracing GenAI - A Strategic ImperativePeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
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Compute IRR and NPV in Microsoft Excel 1.IRR Function .docx
1. Compute IRR and NPV in Microsoft Excel
1.IRR Function
Description:
The Microsoft Excel IRR function returns the internal rate of
return for a series of cash flows. The cash
flows must occur at regular intervals, but do not have to be the
same amounts for each interval.
Syntax
The syntax for the IRR function in Microsoft Excel is:
IRR(range, [estimated_irr] )
Parameters or Arguments
range
A range of cells that represent the series of cash flows.
estimated_irr
Optional. It is your guess at the internal rate of return. If this
parameter is omitted, it
assumes an estimated_irr of 0.1 or 10%
Example (as Worksheet Function)
Let's look at some Excel IRR function examples and explore
2. how to use the IRR function as a
worksheet function in Microsoft Excel:
Based on the Excel spreadsheet above:
This first example returns an internal rate of return of 28%. It
assumes that you start a
business at a cost of $7,500. You net the following income for
the first four years: $3,000,
$5,000, $1,200, and $4,000.
This next example returns an internal rate of return of 5%. It
assumes that you start a
business at a cost of $10,000. You net the following income for
the first three years: $3,400,
$6,500, and $1,000.
=IRR(B1:B4)
Result: 5%
2.NPV Function
Description
The Microsoft Excel NPV function returns the net present value
of an investment.
Syntax
3. The syntax for the NPV function in Microsoft Excel is:
NPV( discount_rate, value1, [value2, ... value_n] )
Parameters or Arguments
discount_rate
The discount rate for the period.
value1, value2, ... value_n
The future payments and income for the investment (ie: cash
flows). There can be up
to 29 values entered.
Note
Microsoft Excel's NPV function does not account for the intial
cash outlay, or may account for
it improperly depending on the version of Excel. However, there
is a workaround.
This workaround requires that you NOT include the initial
investment in the future
payments/income for the investment (ie: value1, value2, ...
value_n), but instead, you need to
subtract from the result of the NPV function, the amount of the
initial investment.
The workaround formula is also different depending on whether
the cash flows occur at the
end of the period (EOP) or at the beginning of the period
(BOP).
If the cash flows occur at the end of the period (EOP), you
4. would use the following formula:
=NPV( discount_rate, value1, value2, ... value_n ) - Initial
Investment
If the cash flows occur at the beginning of the period (BOP), ou
would use the following
formula:
=NPV( discount_rate, value2, ... value_n ) - Initial Investment +
value1
Example (as Worksheet Function)
Let's look at some NPV examples and explore how to use the
NPV function as a worksheet
function in Microsoft Excel:
This first example returns a net present value of $3,457.19. It
assumes that you pay $7,500
as an initial investment . You then receive the following income
for the first four years (EOP):
$3,000, $5,000, $1,200, and $4,000. An annual discount rate of
8% is used.
=NPV(8%, 3000, 5000, 1200, 4000) - 7500
This next example returns a net present value of $8,660.77. It
assumes that you pay $10,000
as an initial investment. You then receive the following income
for the first three years (BOP):
$3,400, $6,500, and $10,000. An annual discount rate of 5% is
used.
=NPV(5%, 6500, 10000) - 10000 + 3400
5. Below is the example used in Chapter 10 PPT.
Chapter 12. Cash Flow Estimation
1
6. Net Present Value analysis, IRR, and PI methods provide very
sophisticated measures of shareholder value generated by
potential capital investments.
If cash flow estimates are bad, any analytical technique for
assessing project value will lead to poor investment decisions.
Capital Budgeting and Cash Flows
2
Capital budgeting concerned with cash flows, not accounting
profit.
To evaluate a capital investment, we must know:
Incremental cash outflows of the investment (marginal cost of
investment), and
Incremental cash inflows of the investment (marginal benefit of
investment)
The timing and magnitude of cash flows and accounting profits
7. can differ dramatically.
Cash Flows Versus Accounting Profit
3
Financing costs should be excluded when evaluating a project’s
cash flow.
Ask the following: Is the project’s existence dependent on
financing?
NO!!!-- you must separate financing and investment decisions
Both interest expense from debt financing and dividend
payments to equity investors should be excluded.
Financing costs are captured in the discounting future cash
flows to present.
Financing Costs
8. 4
Land, Buildings, Equipment, etc.
Asset purchases represent negative cash flows (Accounts don’t
show purchase as a deduction from earnings-use depreciation
instead).
Shipping and installation costs should be included in the
purchase price.
Full initial cost becomes the depreciable basis.
Costs of fixed assets
9. 5
Accountants subtract depreciation from revenues to obtain net
income.
Depreciation shelters income from tax – which impacts cash
flows – so it is relevant.
Depreciation must be added to net income when estimating the
project’s cash flow.
Non-cash Charges
6
10. Working capital= Current assets – current liabilities
Usually inventory, accounts receivable, and accounts payable
Usually, working capital = Inv + AR – AP
New investment projects typically increase net working capital:
cash outflow.
Most of the increase comes from additional inventories and
receivables.
Typically an outflow at the beginning of a project and an inflow
at the end.
Changes in Net Working capital
7
Relevant
Cash flows (not accounting earnings)
Depreciation
11. Incremental cash flows
Opportunity costs: The return on the best alternative use of an
asset. Must be included. (Example: land previously owned.)
Side effects (externalities): Effects of a project on cash flows in
other parts of the firm. (E.g. cannibalism or synergy)
Taxes
Irrelevant
Sunk costs: Outlays that have already occurred.
Cash Flows
8
Opportunity Costs: Currently own land or have to purchase land
Sunk costs: Bought a cell phone, now want new I-
Phone…should original price of phone be included?
(1) Cash Flows from Operations
Operating Cash Flow = EBIT – Taxes + Depreciation
Other Methods for Computing OCF
Bottom-Up Approach
Works only when there is no interest expense
12. OCF = NI + depreciation
Top-Down Approach
OCF = Sales – Costs – Taxes
Don’t subtract non-cash deductions
Tax Shield Approach
OCF = (Sales – Costs)(1 – tc) + Depreciation* tc
Estimating Cash Flows
9
Capital Spending: Changes to fixed assets
(2) Cash Flows from Investments
Part I: Net Capital Spending
Usually up front and at the end
Remember salvage value (after tax)
Part II: Changes in Net Working Capital
Part III: Opportunity Costs
(3) Cash Flows from Side Effects
cannibalism or synergy
Estimating Cash Flows
13. 10
Speedo has decided to introduce the LZR-2. An improved
version of the LZR that Phelps and others wore.
Speedo spent 250k developing an improved “Pulse” fabric
Speedo spent 100k test marketing it with Olympic hopeful
swimmers
Test market was successful
Example: Speedo LZR-2
14. 11
Details
Speedo is assuming three years for the project. They assume
that at the end of three years the technology will be essentially
obsolete.
Cost of equipment to support the new swimsuit: $200,000
(depreciated according to MACRS 3-year life)
Increase in net working capital (mainly fabric materials):
$20,000. This will be recovered at the end of the project.
Inflation has been built into financial statements already.
Operating costs are about 90% of revenues.
The equipment can be sold at the end of the project for an
estimated $20,000.
Speedo has estimated the appropriate discount rate to be 10%.
Example: Speedo LZR-2
15. 12
See the text for the details of the case.
Relevant or not?
250k developing fabric?
100k test marketing swimsuits?
Example: Speedo LZR-2
13
Starting point: Year 0 outflows
16. Equipment -200
NWC -20
Total -220
Example: Speedo LZR-2
14
Depreciation
Why do we care about depreciation?
Taxes
Tax shield = depreciation * tax rate
Now, do you want tax shields sooner or later?
Tax law allows accelerated depreciation (Modified Accelerated
Cost Recovery System or MACRS)
Example: Speedo LZR-2
17. 15
Tax Shield coming sooner implies that the Present Value of the
tax shield will be larger
Example: Speedo LZR-2
16
18. Example: Speedo LZR-2
MACRS increases the present value of an investment’s tax
benefits.
Speedo (rounded):Year
Investment%Depr1200.3366.002200.4590.003200.1530.004200.
0714.00
17
Example: Speedo LZR-2Year 1Year 2Year
3Revenues4,000.003,000.002,000.00Oper costs-3,600.00-
2,700.00-1,800.00Depreciation-66.00-90.00-30.00Inc before
tax334.00210.00170.00Tax (40%)-133.60-84.00-68.00Net
Inc200.40126.00102.00+ Depreciation+66.00+90.00+30.00Oper
CF266.40216.00132.00
19. 18
Equipment can be sold at end of year 3 for 20,000.
So, additional CF:
Book value: 14
Capital gain: 20 – 14 = 6
Taxes: 6 * .4 = 2.4
CF: 20 – 2.4 = 17.6
Put it all together!
Capital investment
Change in NWC
Operating CFs (need depreciation)
CF from Salvage
Evaluate!
Example: LZR-2
21. 133.332014.291053.75
244.453224.49189.57.22
314.8119.217.4914.48.556.68
47.4111.5212.4911.527.76.18
511.528.939.226.935.71
65.768.927.376.235.28
7 8.936.555.94.89
8 4.456.555.94.52
9 6.565.94.46
10 6.555.94.46
11 3.295.94.46
12 5.94.46
13 5.914.46
14 5.94.46
15 5.914.46
16 2.994.46
17-20 4.46
21 2.23
Tax Depreciation Schedules by Recovery-Period Class
Table 6.1Period012345671Capital
Investment10,000(1,949)2Accumulated
depreciation1,5833,1674,7506,3337,9179,500- 03Year-end book
value10,0008,4176,8335,2503,6672,083500- 04Working
capital5501,2893,2614,8903,5832,002- 05Total book value
(3+4)10,0008,9678,1228,5118,5575,6662,502-
06Sales52312,88732,61048,90135,83419,7177Cost of goods
sold8377,72919,55229,34521,49211,8308Other
Costs4,0002,2001,2101,3311,4641,6111,7729Depreciation1,583
1,5831,5831,5831,5831,58310Pretax profit (6-7-8-
9)(4,000)(4,097)2,36510,14416,50911,1484,5321,44911Tax at
35%(1,400)(1,434)8283,5505,7783,9021,58650712Profit after
tax (10-11)2,600(2,663)1,5376,59510,7317,2462,946942
Table
6.2Period012345671Sales52312,88732,61048,90135,83419,7172
Cost of goods sold8377,72919,55229,34521,49211,8303Other
costs4,0002,2001,2101,3311,4641,6111,7724Tax on
22. operations(1,400)(1,434)8283,5505,7783,9021,5865Cash flow
from operations (1-2-3-
4)(2,600)(1,080)3,1208,17712,3148,8294,5296Change in
working
capital(550)(739)(1,972)(1,629)1,3071,5812,0027Capital
investment and disposal(10,000)1,4428Net cash flow
(5+6+7)(12,600)(1,630)2,3816,20510,68510,1366,1103,4449Pre
sent value at
20%(12,600)(1,358)1,6543,5915,1534,0742,046961Net Present
value= +3520 (sum of 9)
Table 6.4Tax Depreciation Schedules by Recovery-Period
ClassYear(s)3-Year5-Year7-Year10-Year15-Year20-
Year133.332014.291053.75244.453224.49189.57.22314.8119.21
7.4914.48.556.6847.4111.5212.4911.527.76.18511.528.939.226.
935.7165.768.927.376.235.2878.936.555.94.8984.456.555.94.52
96.565.94.46106.555.94.46113.295.94.46125.94.46135.914.461
45.94.46155.914.46162.994.4617-204.46212.23
Table
6.5Period012345671Sales52312887326104890135834197172Co
st of goods sold8377729195522934521492118303Other
Costs40002200121013311464161117724Tax
depreciation20003200192011525765Pretax profit (1-2-3-4)-
4000-451474898071694011579553919496Taxes at 35%-1400-
15802623432592940531939682
Table
6.6Period012345671Sales52312887326104890135834197172Co
st of goods sold8377729195522934521492118303Other
costs40002200121013311464161117724Tax-1400-
158026234325929405319396825Cash flow from operations (1-
2-3-4)-2600-934368682951216386784176-6826Change in
working capital-550-739-1972-16291307158120027Capital
investment and disposal-1000019498Net cash flow (5+6+7)-
12600-148429476323105349985575732699Present Value=
+3802 (sum of 9)-12600-123720473659508040131928912Net
present value= +3802 (sum of 9)
7.1Plotting data Fig
29. Time is an important element of the decision
Cash flows of investment can be measured
But, there may be some uncertainties
Classification of decisions
Accept or reject
Choose best of a set (mutually exclusive)
Ranking (projects are independent and cash is limited)
Capital budgeting
Independent vs. mutually exclusive projects
Independent projects:
if the cash flows of one are unaffected by the acceptance of the
other.
Multiple projects can be chosen.
Mutually exclusive projects:
if the cash flows of one can be adversely impacted by the
acceptance of the other.
Only ONE of several potential projects can be chosen
30. 3
Financial managers should accept a project when its perceived
benefits exceed perceived costs. In general, value is created
when benefits exceed costs.
NPV = Total PV of future CFs - Initial Investment
When firms accept all positive Net Present Value investments,
they maximize the value of their shareholders.
Net Present Value (NPV)
31. Net Present Value (NPV)
Sum of the PVs of all cash inflows and outflows of a project:
Estimating NPV:
1. Estimate future cash flows: how much? and when?
2. Estimate discount rate
3. Estimate initial costs
Reinvestment assumption
Assumes all cash flows are reinvested at discount rate
Rule
Accept if NPV > 0
Reject if NPV < 0.
Ranking Criteria
Choose the highest NPV
32. What is Project S’ NPV?
WACC = 10%
Year
CFt
PV of CFt
0
-
100
-
$100.00
1
70
63.64
2
50
41.32
3
20
15.02
NPVS
=
$ 19.98
Excel: =NPV(rate,CF1:CFn) + CF0
Here, CF0 is negative, rate is discount rate or WACC.
33. 6
Rationale for the NPV Method
NPV = PV of inflows – Cost
= Net gain in wealth
If projects are independent, accept if NPV > 0.
If projects are mutually exclusive, accept projects with the
highest positive NPV, those that add the most value.
34. 7
IRR is the discount rate that forces PV of inflows equal to cost,
and the NPV = 0:
Reinvestment assumption: All future cash flows assumed
reinvested at the IRR
Solving for IRR with a financial calculator:
Enter CFs in Cash Flow register.
Press IRR.
Solving for IRR with Excel:
=IRR(CF0:CFn)
Internal Rate of Return (IRR)
35. 8
How is a project’s IRR similar to a bond’s YTM?
They are the same thing.
Think of a bond as a project. The YTM on the bond would be
the IRR of the “bond” project.
EXAMPLE: Suppose a 10-year bond with a 9% annual coupon
and $1,000 par value sells for $1,134.20.
Solve for IRR = YTM = 7.08%, the annual return for this
project/bond.
9
Rules for the IRR Method
For independent projects:
Take all projects with IRR>r*
r*=the opportunity cost of capital or required rate of return
For mutually exclusive projects:
36. Take the project with the highest IRR, if IRR>r*
10
What is the IRR of the following project?
The IRR does not always exist!
Potential problems with IRRYear012Project A100-200150
37. Lending or Borrowing?
Potential problems with IRR
12
Potential problems with IRR
The following cash flow generates NPV=$ 3.3 million at 10%.
It has IRRs of (-44%) and +11.6%.
38. Cash Flows (millions of Australian dollars)
13
When the sign of the cash flows changes more than once, you
get multiple rates of return
The IRR does not always unique!
Potential problems with IRR
40. If cash flows have the traditional pattern (one or several
negative cash flows followed by only positive cash flows), then
the NPV is positive whenever the IRR is greater than the
opportunity cost of capital – Thus, the IRR rule usually works.
Potential problems with IRR
FlowsNumber of IRRsIRR criterionNPV criterionFirst cash flow
is (-) and all remaining cash flows are (+)1Accept if IRR>R
Reject if IRR<RAccept if NPV>0
Reject if NPV<0
First cash flows is (+) and all remaining cash flows are (-
)1Accept if IRR<R
Reject if IRR>R
Accept if NPV>0
Reject if NPV<0
Some cash flows after first are (+) and some cash flows after
first are (-)Maybe more than 1No valid IRRAccept if NPV>0
Reject if NPV<0
General rules
41. Potential problems with IRR: scale issue
Mutually Exclusive Projects
Mutually exclusive
Only ONE of several potential projects can be chosen
Independent: Accepting/rejecting one project does not affect the
decision of the other projects
Scale issues
IRR sometimes ignores the magnitude of the project.
42. 17
Potential problems with IRR: scale issue
In this case, can IRR be salvaged?
Look at smaller project
Acceptable? Yes.
So, should you invest extra $$$ for larger project.
Look at incremental CFs: INCREMENTAL IRR
Now, which project is better?
18
Timing Issues
43. Preferred project depends on the discount rate, not the IRR
(mutually exclusive projects)
Potential problems with IRR: timing issue
0 1 2 3
$10,000 $1,000 $1,000
-$10,000
Project A
0 1 2 3
$1,000 $1,000 $12,000
-$10,000
Project B
44. 19
Potential problems with IRR: timing issue
20
20
Potential problems with IRR: timing issue
10.55% = IRR
To find crossover rate: Find INCREMENTAL IRR!
45. 21
The number of years required to recover a project’s cost, or
“How long does it take to get our money back?”
Calculated by adding project’s cash inflows to its cost until the
cumulative cash flow for the project turns positive.
Payback period
46. The payback period is the number of years, t*, such that
For independent projects
Accept all projects for which t*<K (where K is the cutoff)
For mutually exclusive projects:
Accept the project with the lowest t* as long as t*<K (where K
is the cutoff)
Mutually exclusive: Only ONE of several potential projects can
be chosen
Payback period
48. 24
Examine the three projects and note the mistake we would make
if we insisted on only taking projects with a payback period of 2
years or less.
Payback period
25
Strengths and Weaknesses of Payback
Strengths
Provides an indication of a project’s risk and liquidity.
Easy to calculate and understand.
49. Weaknesses
Ignores the time value of money.
Ignores CFs occurring after the payback period.
26
The discounted payback period is the number of years, t*, such
that
For non-mutually excusive projects
Accept all projects for which t*<K
For mutually exclusive projects:
Accept the project with the lowest t* as long as t*<K (where K
is the cutoff)
Discounted payback period
50. Discounted Payback Period
Uses discounted cash flows rather than raw CFs.
Disc PaybackL = 2 + / = 2.7 years;
If our cutoff rule was 2 years, this project would be rejected.
41.32
60.11
CFt
Cumulative
0
1
2
3
73. Calculating the Weighted Average Cost of Capital
WACC = wdrd(1 – T) + wprp + wcrs
The w’s refer to the firm’s capital structure weights:
wd=weight of the debt
wp=weight of the preferred stock
wc=weight of the common equity
The r’s refer to the cost of each component:
rd=before-tax cost of the debt
rp =cost of the preferred stock
rs =cost of the common equity
75. used as a measure of rd.
5
Cost of Preferred Stock
WACC = wdrd(1 – T) + wprp + wcrs
rp is the marginal cost of preferred stock, which is the return
investors require on a firm’s preferred stock.
D is the preferred dividend.
P is the current price of the preferred stock.
Preferred dividends are not tax-deductible, so no tax
adjustments necessary.
76. 6
The Cost of Common Equity
Cost of equity is more challenging to estimate than the cost of
debt or the cost of preferred stock because common
stockholder’s rate of return is not fixed as there is no stated
coupon rate or dividend.
The costs will vary for two sources of equity:
Retained earnings (No flotation costs)
Note retained earnings are not a free source of capital. There is
an opportunity cost.
rs=cost of the retained earning
New issue (incurs flotation costs)
re=cost of new common stock
77. Cost estimation techniques
Three Ways to Determine the Cost of Common Equity, rs
The Dividend Growth Model: rs = (D1/P0) + g
The Capital Asset Pricing Model: rs = rf + β(rM – rf )
Bond-Yield-Plus-Risk-Premium:
rs = Bond yield + risk premium= rd + RP
78. The Dividend Growth Model
Investors’ required rate of return (For Retained Earnings):
D1 = Dividend expected one year hence
P0 = Current price of common stock
g = growth rate
The Dividend Growth Model
Investors’ required rate of return (For new issues)
D1 = Dividends expected one year hence
NP = Net proceeds per share
= Stock price – flotation cost per share
F=the percentage flotation cost required to sell the new stock
g = growth rate
79. The Dividend Growth Model
Example: A company expects dividends this year to be $1.10,
based upon the fact that $1 were paid last year. The firm
expects dividends to grow 10% next year and into the
foreseeable future. Stock is trading at $35 a share.
Cost of retained earnings:
Cost of new stock (with a $3 floatation cost per share):
80. The Capital Asset Pricing Model
CAPM: rs = rf + β(rM – rf )
rf = Risk Free rate
rm =market risk return
rm – rf = Market Risk Premium
Capital Asset Pricing Model
Example: If beta is 1.25, risk-free rate is 1.5% and expected
return on market is 10%
– rf)
= .015 + 1.25(.10 – .015)
= 12.125%
81. Capital Asset Pricing Model Variable estimates
CAPM is easy to apply. Also, the estimates for model variables
are generally available from public sources.
Risk Free Rate: Wide range of US government securities on
which to base risk-free rate
Beta: Estimates of beta are available from a wide range of
services, or can be estimated using regression analysis of
historical data.
Market risk premium: It can be estimated by looking at history
of stock returns and premium earned over risk-free rate.
82. Bond-Yield-Plus-Risk-Premium Approach
rd = 10% and RP = 4%.
This RP(risk premium) is not the same as the CAPM RPM.
This method produces a ballpark estimate of rs, and can serve as
a useful check.
rs = rd + RP
rs = 10.0% + 4.0% = 14.0%
15
What factors influence a company’s composite WACC?
Market conditions.
The firm’s capital structure and dividend policy.
The firm’s investment policy. Firms with riskier projects
generally have a higher WACC.
83. 16
Should the company use the composite WACC as the hurdle rate
for each of its projects?
NO! The composite WACC reflects the risk of an average
project undertaken by the firm. Therefore, the WACC only
represents the “hurdle rate” for a typical project with average
risk.
Different projects have different risks. The project’s WACC
should be adjusted to reflect the project’s risk.