1 Chapter 7: Net Present Value and Capital Budgeting 7.1 a. Yes, the reduction in the sales of the company s other products, referred to as erosion, should be treated as an incremental cash flow. These lost sales are included because they are a cost (a revenue reduction) that the firm must bear if it chooses to produce the new product. b. Yes, expenditures on plant and equipment should be treated as incremental cash flows. These are costs of the new product line. However, if these expenditures have already occurred, they are sunk costs and are not included as incremental cash flows. c. No, the research and development costs should not be treated as incremental cash flows. The costs of research and development undertaken on the product during the past 3 years are sunk costs and should not be included in the evaluation of the project. Decisions made and costs incurred in the past cannot be changed. They should not affect the decision to accept or reject the project. d. Yes, the annual depreciation expense should be treated as an incremental cash flow. Depreciation expense must be taken into account when calculating the cash flows related to a given project. While depreciation is not a cash expense that directly affects cash flow, it decreases a firm s net income and hence, lowers its tax bill for the year. Because of this depreciation tax shield, the firm has more cash on hand at the end of the year than it would have had without expensing depreciation. e. No, dividend payments should not be treated as incremental cash flows. A firm s decision to pay or not pay dividends is independent of the decision to accept or reject any given investment project. For this reason, it is not an incremental cash flow to a given project. Dividend policy is discussed in more detail in later chapters. f. Yes, the resale value of plant and equipment at the end of a project s life should be treated as an incremental cash flow. The price at which the firm sells the equipment is a cash inflow, and any difference between the book value of the equipment and its sale price will create gains or losses that result in either a tax credit or liability. g. Yes, salary and medical costs for production employees hired for a project should be treated as incremental cash flows. The salaries of all personnel connected to the project must be included as costs of that project. 7.2 Item I is a relevant cost because the opportunity to sell the land is lost if the new golf club is produced. Item II is also relevant because the firm must take into account the erosion of sales of existing products when a new product is introduced. If the firm produces the new club, the earnings from the existing clubs will decrease, effectively creating a cost that must be included in the decision. Item III is not relevant because the costs of Research and Development are sunk costs. Decisions made in the past cannot be changed. They are not relevant to the production of the new clubs. Choice C is the correct answer.
2 7.3 Cash Flow Chart: Year 0 Year 1 Year 2 Year 3 Year 4 1. Sales revenue - $7,000 $7,000 $7,000 $7, Operating costs - 2,000 2,000 2,000 2, Depreciation - 2,500 2,500 2,500 2, Income before tax - 2,500 2,500 2,500 2,500 [1-(2+3)] 5. Taxes at 34% Net income 0 1,650 1,650 1,650 1,650 [4-5] 7. Cash flow from 0 4,150 4,150 4,150 4,150 operation [1-2-5] 8. Initial Investment -$10, Changes in net working capital 10. Total cash flow from -10, investment [9+10] 11. Total cash flow [7+10] -$10,200 $4,100 $4,100 $4,250 $4,350 a. Incremental Net Income [from 6]: Year 0 0 Year 1 Year 2 Year 3 Year 4 b. Incremental cash flow [from 11]: Year 0 -$10,200 Year 1 $4,100 Year 2 $4,100 Year 3 $4,250 Year 4 $4,350 c. The present value of each cash flow is simply the amount of that cash flow discounted back from the date of payment to the present. For example, discount the cash flow in Year 1 by 1 period (1.12), and discount the cash flow that occurs in Year 2 by 2 periods (1.12) 2. Note that since the Year 0 cash flow occurs today, its present value does not need to be adjusted. PV(C 0 ) = -$10,200 PV(C 1 ) = $4,100 / (1.12) = $3,661 PV(C 2 ) = $4,100 / (1.12) 2 = $3,268 PV(C 3 ) = $4,250 / (1.12) 3 = $3,025 PV(C 4 ) = $4,350 / (1.12) 4 = $2,765 NPV = PV(C 0 ) + PV(C 1 ) + PV(C 2 ) + PV(C 3 ) + PV(C 4 ) = $2,519 These calculations could also have been performed in a single step: NPV = -$10,200 + $4,100 / (1.12) + $4,100 / (1.12) 2 + $4,250 / (1.12) 3 + $4,350 / (1.12) 4 = $2,519 The NPV of the project is $2,519.
3 7.4 The initial payment, which occurs today (year 0), does not need to be discounted: PV = $1,400,000 The expected value of his bonus payment is: Expected Value = C 0 (Probability of Occurrence) + C 1 (Probability of Nonoccurrence) = $750,000 (0.60) + $0 (0.40) = $450,000 The expected value of his salary, including the expected bonus payment, is $2,950,000 (=$2,500,000 + $450,000). The present value of his three-year salary with bonuses is: PV Annuity = C 1 A T r = $2,950,000 A = $7,041,799 Remember that the annuity formula yields the present value of a stream of cash flows one period prior to the initial payment. Therefore, applying the annuity formula to a stream of cash flows that begins four years from today will generate the present value of that annuity as of the end of year three. Discount that result by three years to find the present value. PV Delayed Annuity = (A T r) / (1+r) T-1 Thus, the total PV of his three-year contract is: = ($1,250,000 A ) / (1.1236) 3 = $4,906,457 PV = $1,400,000 + $2,950,000 A ($1,250,000 A ) / (1.1236) 3 = $1,400,000 + $7,041,799 + $4,906,457 = $13,348,256 The present value of the contract is $13,348, Compute the NPV of both alternatives. If either of the projects has a positive NPV, that project is more favorable to Benson than simply continuing to rent the building. If both of the projects have positive net present values, recommend the one with the higher NPV. If neither of the projects has a positive NPV, the correct recommendation is to reject both projects and continue renting the building to the current occupants. Note that the remaining fraction of the value of the building and depreciation are not incremental and should not be included in the analysis of the two alternatives. The $225,000 purchase price of the building is a sunk cost and should be ignored.
4 Product A: t = 0 t = 1-14 t = 15 Revenues $105,000 $105,000 -Foregone rent 12,000 12,000 -Expenditures 60,000 63,750 ** -Depreciation* 12,000 12,000 Earnings before taxes $21,000 $17,250 -Taxes (34%) 7,140 5,865 Net income $13,860 $11,385 +Depreciation 12,000 12,000 Capital investment -$180,000 A/T-NCF -$180,000 $25,860 $23,385 *Since the two assets, equipment and building modifications, are depreciated on a straight-line basis, the depreciation expense will be the same in each year. To compute the annual depreciation expense, determine the total initial cost of the two assets ($144,000 + $36,000 = $180,000) and divide this amount by 15, the economic life of each of the 2 assets. Annual depreciation expense for building modifications and equipment equals $12,000 (= $180,000 / 15). **Cash expenditures ($60,000) + Restoration costs ($3,750) The cash flows in years 1-14 (C 1 - C 14 ) could have been computed using the following simplification: After-Tax NCF = Revenue (1 T C ) - Expenses (1 - T C ) + Depreciation (T C ) = $105,000 (0.66) - $72,000 (0.66) + $12,000 (0.34) = $25,860 The cash flows for year 15 could have been computed by adjusting the annual after-tax net cash flows of the project (computed above) for the after-tax value of the restoration costs. After-Tax value of restoration costs = Restoration Costs (1 - T C ) = -$3,750 (0.66) = -$2,475 After-Tax NCF = $25,860 - $2,475 = $23,385 The present value of the initial outlay is simply the cost of the outlay since it occurs today (year 0). PV(C 0 ) = -$180,000 Since the cash flows in years 1-14 are identical, their present value can be found by determining the value of a 14-year annuity with payments of $25,860, discounted at 12 percent. PV(C 1-14 ) = $25,860 A = $171,404 Because the last cash flow occurs 15 years from today, discount the amount of the cash flow back 15 years at 12 percent to determine its present value. PV(C 15 ) = $23,385 / (1.12) 15 = $4,272 NPV A = PV(C 0 ) + PV(C 1-14 ) + PV(C 15 ) = -$4,324
5 These calculations could also have been performed in a single step: NPV A = -$180,000 + $25,860 A $23,385 / (1.12) 15 = -$180,000 + $171,404 + $4,272 = -$4,324 Since the net present value of Project A is negative, Benson would rather rent the building to its current occupants than implement Project A. Product B t = 0 t = 1-14 t = 15 Revenues $127,500 $127,500 -Foregone rent 12,000 12,000 -Expenditures 75, ,125 ** -Depreciation* 14,400 14,400 Earnings before taxes $26,100 -$2,025 -Taxes (34%) 8, Net income $17,226 -$1,336 +Depreciation 14,400 14,400 Capital investment -$216,000 A/T-NCF -$216,000 $31,626 $13,064 * Since the two assets, equipment and building modifications, are depreciated on a straight-line basis, the depreciation expense will be the same in each year. To compute the annual depreciation expense, determine the total initial cost of the two assets ($162,000 + $54,000 = $216,000) and divide this amount by 15, the economic life of each of the two assets. Annual depreciation expense for building modifications and equipment is $14,400 (= $216,000/ 15). **Cash expenditures ($75,000) + Restoration costs ($28,125) The cash flows in years 1-14 (C 1 - C 14 ) could have been computed using the following simplification: After-Tax NCF = Revenue (1 - T) - Expenses (1 - T) + Depreciation (T) = $127,500 (0.66) - $87,000 (0.66) + $14,400 (0.34) = $31,626 The cash flows for year 15 could have been computed by adjusting the annual after-tax net cash flows of the project (computed above) for the after-tax value of the restoration costs. After-tax value of restoration costs = Restoration Costs (1 - T C ) = - $28,125(0.66) = -$18,562 After-Tax NCF = $31,626 - $18,562 = $13,064 The present value of the initial outlay is simply the cost of the outlay since it occurs today (year 0). PV(C 0 ) = -$216,000 Because the cash flows in years 1-14 are identical, their present value can be found by determining the value of a 14-year annuity with payments of $31,626, discounted at 12 percent. PV(C 1-14 ) = $31,626 A = $209,622
6 Since the last cash flow occurs 15 years from today, discount the amount of the cash flow back 15 years at 12 percent to determine its present value. PV(C 15 ) = $13,064 / (1.12) 15 = $2,387 NPV B = PV(C 0 ) + PV(C 1-14 ) + PV(C 15 ) = -$216,000 + $209,622 + $2,387 = -$3,991 These calculations could also have been performed in a single step: NPV B = -$216,000 + $31,626 A $13,064 / (1.12) 15 = -$216,000 + $209,622 + $2,387 = -$3,991 Since the net present value of Project B is negative, Benson would rather rent the building to its current occupants than implement Project B. Since the net present values of both Project A and Project B are negative, Benson should continue to rent the building to its current occupants.
CHAPTER 7 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concepts Review and Critical Thinking Questions 1. In this context, an opportunity cost refers to the value of an asset or other input that will
Capital Budgeting: Net Present Value vs Internal Rate of Return (Relevant to AAT Examination Paper 4 Business Economics and Financial Mathematics) Y O Lam Capital budgeting assists decision makers in a
Chapter 13 Capital Budgeting: Estimating Cash Flow and Analyzing Risk ANSWERS TO END-OF-CHAPTER QUESTIONS 13-3 Since the cost of capital includes a premium for expected inflation, failure to adjust cash
CHAPTER 10 MAKING CAPITAL INVESTMENT DECISIONS Answers to Concepts Review and Critical Thinking Questions 1. In this context, an opportunity cost refers to the value of an asset or other input that will
Chapter 9 9-1 We assume that revenues and selling & administrative expenses will increase at the rate of inflation. Year Revenue COGS Depreciation S&A Taxable Income After-tax Operating Income 1 $20.60
CHAPTER 7: NPV AND CAPITAL BUDGETING I. Introduction Assigned problems are 3, 7, 34, 36, and 41. Read Appendix A. The key to analyzing a new project is to think incrementally. We calculate the incremental
21-18 Capital budgeting methods, no income taxes. The table for the present value of annuities (Appendix A, Table 4) shows: 10 periods at 14% 5.216 1a. Net present value $28,000 (5.216) $146,048 $36,048
Chapter 11 Cash Flow Estimation and Risk Analysis ANSWERS TO SELECTED END-OF-CHAPTER QUESTIONS 11-1 a. Cash flow, which is the relevant financial variable, represents the actual flow of cash. Accounting
FIN 301 Class Notes Chapter 8: Using DCF Analysis to Make Investment Decisions Capital Budgeting: is the process of planning for capital expenditures (long term investment). Planning process involves 1-
Chapter 6 1. Your firm is considering two investment projects with the following patterns of expected future net aftertax cash flows: Year Project A Project B 1 $1 million $5 million 2 2 million 4 million
Which projects should the corporation undertake Investment criteria 1. Investment into a new project generates a flow of cash and, therefore, a standard DPV rule should be the first choice under consideration.
Net Present Value and Capital Budgeting (Text reference: Chapter 7) Topics what to discount the CCA system total project cash flow vs. tax shield approach detailed CCA calculations and examples project
Cash Flow, Taxes, and Project Evaluation Of the four steps in calculating NPV, the most difficult is the first: Forecasting cash flows. We now focus on this problem, with special attention to What is cash
Capital Budgeting Techniques, Project Cash Flows, and Risk 1. Calculate the NPV for the following project. an outflow of $7,000 followed by inflows of $3,000, $2,500 and $3,500 at one-year intervals at
CHAPTER 9 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA 1. To calculate the payback period, we need to find the time that the project has recovered its initial investment. After three years, the project
corporate finance, final exam practice questions, NPV *Question 1.1: Net Present Value A firm invests $200,000 in machinery that yields net after-tax cash flows of $90,000 at the end of each of the next
CHAPTER 21 CAPITAL BUDGETING AND COST ANALYSIS 21-20 Capital budgeting with uneven cash flows, no income taxes. 1. Present value of savings in cash operating costs: $10,000 0.862 $ 8,620 8,000 0.743 5,944
apital Budgeting Formula Not in the book. Wei s summary If salvage value S is less than U n : If salvage value S is greater than U n : Note: IF t : incremental cash flows (could be negative) )(NW): change
Overview of Lecture 9 Taxes The Tax Code Calculating after-tax cash flows What Discount Rate to Use? Materials covered: Reader, Lecture 7 BM Chapter 6, pp. 121-134. M. Spiegel and R. Stanton, 2000 1 Review:
Solutions to Chapter 9 Using Discounted Cash-Flow Analysis to Make Investment Decisions 1. Net income = ($74 $42 $10) [0.35 ($74 $42 $10)] = $22 $7.7 = $14.3 million Revenues cash expenses taxes paid =
Valuing common stocks Application of the DCF approach TIP If you do not understand something, ask me! The plan of the lecture Review what we have accomplished in the last lecture Some terms about stocks
Multiple Choice Questions (45%) Choose the Correct Answer 1. The following information was taken from XYZ Company s accounting records for the year ended December 31, 2014: Increase in raw materials inventory
Answers to Warm-Up Exercises E11-1. Categorizing a firm s expenditures Answer: In this case, the tuition reimbursement should be categorized as a capital expenditure since the outlay of funds is expected
Present value = future value after t periods (3.1) (1 + r) t PV of perpetuity = C = cash payment (3.2) r interest rate Present value of t-year annuity = C [ 1 1 ] (3.3) r r(1 + r) t Future value of annuity
Chapter 1 The Overall Process Capital Expenditures Whenever we make an expenditure that generates a cash flow benefit for more than one year, this is a capital expenditure. Examples include the purchase
Chapter 9 Cash Flow and Capital Budgeting MULTIPLE CHOICE 1. Gamma Electronics is considering the purchase of testing equipment that will cost $500,000. The equipment has a 5-year lifetime with no salvage
CHAPTER 7 Fundamentals of Capital Budgeting Chapter Synopsis 7.1 Forecasting Earnings A firm s capital budget lists all of the projects that a firm plans to undertake during the next period. The selection
Finance 445 Practice Exam Chapters 1, 2, 5, and part of Chapter 6 Part One. Multiple Choice Questions. 1. Similar to the example given in class, assume that a corporation has $500 of cash revenue and $300
Mariusz Próchniak Chair of Economics II Warsaw School of Economics CAPITAL BUDGETING Managerial Economics 1 2 1 Future value (FV) r annual interest rate B the amount of money held today Interest is compounded
Oklahoma State University Spears School of Business Capital Investments Slide 2 Incremental Cash Flows Cash flows matter not accounting earnings. Sunk costs do not matter. Incremental cash flows matter.
Capital Budgeting Further Considerations For 9.220, Term 1, 2002/03 02_Lecture10.ppt Lecture Outline Introduction The input for evaluating projects relevant cash flows Inflation: real vs. nominal analysis
Chapter 1: Introduction 1.1 Introduction Every long term decision the firm makes is a capital budgeting decision whenever it changes the company s cash flows. Consider launching a new product. This involves
Vol. 2, Chapter 4 Capital Budgeting Problem 1: Solution Answers found using Excel formulas: 1. Amount invested = $10,000 $21,589.25 Compounding period = annually Number of years = 10 Annual interest rate
12-1 Planning for Capital Investments Managerial Accounting Fifth Edition Weygandt Kimmel Kieso 12-2 study objectives 1. Discuss capital budgeting evaluation, and explain inputs used in capital budgeting.
INDUSTRIAL UNIVERSITY OF HO CHI MINH CITY AUDITING ACCOUNTING FACULTY 10.SHORT-TERM DECISIONS & CAPITAL INVESTMENT APPRAISAL 4 Topic List INDUSTRIAL UNIVERSITY OF HO CHI MINH CITY AUDITING ACCOUNTING FACULTY
Chapter 14 Notes Page 1 Capital Budgeting This chapter examines various tools used to evaluate potential projects or investments. Accountants advocate the use of the Simple Rate of Return, which is based
Learning Objectives 1-1 Capital Budgeting Cash Flows 1 Corporate Financial Management 3e Emery Finnerty Stowe 1-2 Calculate incremental after-tax cash flows for a capital budgeting project. Explain the
Part 7. Capital Budgeting What is Capital Budgeting? Nancy Garcia and Digital Solutions Digital Solutions, a software development house, is considering a number of new projects, including a joint venture
CHAPTER 12 RISK, COST OF CAPITAL, AND CAPITAL BUDGETING Answers to Concepts Review and Critical Thinking Questions 1. No. The cost of capital depends on the risk of the project, not the source of the money.
Project Cost Management Guide to Mathematical Questions PMI, PMP, CAPM, PMBOK, PM Network and the PMI Registered Education Provider logo are registered marks of the Project Management Institute, Inc. Present
The Time Value of Money Future Value - Amount to which an investment will grow after earning interest. Compound Interest - Interest earned on interest. Simple Interest - Interest earned only on the original
MBA Teaching Note 08-02 Net Present Value Analysis of the Purchase of a Hybrid Automobile 1 In this day and age of high energy prices and a desire to be more environmentally friendly, the automobile industry
Investment Appraisal Article relevant to F1 Business Mathematics and Quantitative Methods Author: Pat McGillion, current Examiner. Questions 1 and 6 often relate to Investment Appraisal, which is underpinned
Multiple Choice Questions 1. The changes in a firm's future cash flows that are a direct consequence of accepting a project are called cash flows. A. incremental b. stand-alone c. after-tax d. net present
Excellence in Financial Management Course 3: Capital Budgeting Analysis Prepared by: Matt H. Evans, CPA, CMA, CFM This course provides a concise overview of capital budgeting analysis. This course is recommended
Chapter 8 Capital Budgeting Process and Techniques MULTIPLE CHOICE 1. The capital budgeting process involves a. identifying potential investments b. analyzing the set of investment opportunities, and identifying
DUKE UNIVERSITY Fuqua School of Business FINANCE 351 - CORPORATE FINANCE Problem Set #1 Prof. Simon Gervais Fall 2011 Term 2 Questions 1. Two years ago, you put $20,000 dollars in a savings account earning
Chapter 18 Web Extension: Percentage Cost Analysis, Leasing Feedback, and Leveraged Leases Percentage Cost Analysis Anderson s lease-versus-purchase decision from Chapter 18 could also be analyzed using
Capital budgeting & cash flow analysis A reading prepared by Pamela Peterson Drake O U T L I N E 1. Introduction 2. Cash flows from investments 3. Investment cash flows 4. Operating cash flows 5. Putting
CHAPTER 6 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Answers to Concepts Review and Critical Thinking Questions 1. Assuming conventional cash flows, a payback period less than the project s life means
Introduction to Discounted Cash Flow and Project Appraisal Charles Ward Company investment decisions How firms makes investment decisions about real projects (not necessarily property) How to decide which
EXERCISES Ex. 14 1 There were net additions, such as depreciation and amortization of intangible assets of $389 million, to the net loss reported on the income statement to convert the net loss from the
Final Examination, BUS312, D1+ E1 NAME: SFU Student number: Instructions: For qualitative questions, point form is not an acceptable answer. For quantitative questions, an indication of how you arrived
8 Fundamentals of Capital Budgeting LEARNING OBJECTIVES Identify the types of cash flows needed in the capital budgeting process Forecast incremental earnings in a pro forma earnings statement for a project
The Anderson School at UCLA POL 2000-20 Numbers 101: Taxes, Investment, and Depreciation Copyright 2002 by Richard P. Rumelt. In the Note on Cost and Value over Time (POL 2000-09), we introduced the basic
ILLUSTRATION 24-1 OPERATING, INVESTING, AND FINANCING ACTIVITIES COMPONENTS OF THE STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES + Sales and Service Revenue Received Cost of Sales Paid Selling
How to Calculate Present Values Michael Frantz, 2010-09-22 Present Value What is the Present Value The Present Value is the value today of tomorrow s cash flows. It is based on the fact that a Euro tomorrow
Chapter 22 Real Options Multiple Choice Questions 1. The following are the main types of real options: (I) The option to expand if the immediate investment project succeeds (II) The option to wait (and
Chapter 8: Fundamentals of Capital Budgeting-1 Chapter 8: Fundamentals of Capital Budgeting Big Picture: To value a project, we must first estimate its cash flows. Note: most managers estimate a project
CHAPTER 25 Solved Problems P.25.16 The following data are furnished by the Hypothetical Leasing Ltd (HLL): Investment cost Rs 500 lakh Primary lease term 5 years Estimated residual value after the primary
Chapter 7 Fundamentals of Capital Budgeting 7-1. Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats.
CHAPTER 10: UNCERTAINTY AND RISK IN CAPITAL BUDGETING: PART I 10-1 Year ATCF 0-2,500,000 Initial Investment = $2,500,000 1 $1,280,000 Annual Operating Cash Flows 2 $1,280,000 Revenues $5,000,000 3 $1,280,000
CHAPTER Accounting for Leases OBJECTIVES After careful study of this chapter, you will be able to: 1. Explain the advantages of leasing. 2. Understand key terms related to leasing. 3. Explain how to classify
Decision making made easy (Relevant to AAT Examination Paper 4: Business Economics and Financial Mathematics) YO Lam, SCOPE, City University of Hong Kong In the competitive world of business, we need to
Chapter 9 Cash Flow and Capital Budgeting Answers to Concept Review Questions 1. Why is it important for the financial analyst to (a) focus on incremental cash flows, (b) ignore financing costs, (c) consider
Lease Financing Types of leases Tax treatment of leases Effects on financial statements Lessee s analysis Lessor s analysis Other issues in lease analysis Who are the two parties to a lease transaction?
Management Accounting 161 Incremental Analysis and Decision-making Costs Nature of Incremental Analysis Decision-making is essentially a process of selecting the best alternative given the available information
Valuation The Big Picture: Part II - Valuation A. Valuation: Free Cash Flow and Risk Apr 1 Apr 3 Lecture: Valuation of Free Cash Flows Case: Ameritrade B. Valuation: WACC and APV Apr 8 Apr 10 Apr 15 Lecture:
COST & BREAKEVEN ANALYSIS http://www.tutorialspoint.com/managerial_economics/cost_and_breakeven_analysis.htm Copyright tutorialspoint.com In managerial economics another area which is of great importance
CHAPTER How to Calculate Present Values 0. Mr. Basset is buying a security worth $0,000 now, which is its present value. The unknown is the annual payment. Using the present value of an annuity formula,
Net Present Value and Other Investment Criteria Topics Covered Net Present Value Other Investment Criteria Mutually Exclusive Projects Capital Rationing Net Present Value Net Present Value - Present value
Capital Budgeting Final Analysis For 9.220 Students, Term 1, 2002/03 02_Lecture11.ppt Lecture Outline Introduction CCA Detailed Calculations Capital Gains Taxes Summary of Capital Budgeting Items and Tax
Chapter 7 Fundamentals of Capital Budgeting Copyright 2011 Pearson Prentice Hall. All rights reserved. Chapter Outline 7.1 Forecasting Earnings 7.2 Determining Free Cash Flow and NPV 7.3 Choosing Among
CHAPTER 4 DISCOUNTED CASH FLOW VALUATION Solutions to Questions and Problems NOTE: All-end-of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability
NEW MEDICARE TAX ON UNEARNED NET INVESTMENT INCOME Q-1: Who will be subject to the new taxes imposed in the health legislation? A: A new 3.8% tax will apply to the unearned income of High Income taxpayers.
Chapter 5 Capital Budgeting Road Map Part A Introduction to finance. Part B Valuation of assets, given discount rates. Fixed-Income securities. Common stocks. Real assets (capital budgeting). Part C Determination
In Excel language, if the initial cash flow is an inflow (positive), then the future value must be an outflow (negative). Therefore you must add a negative sign before the FV (and PV) function. The inputs
EVALUATING CAPITAL INVESTMENTS IN AGRIBUSINESS Technological advancements impact the agribusiness industry in a very irregular fashion. Given the difficulties associated with predicting the arrival and/or
Capital Investment Appraisal Techniques To download this article in printable format click here A practising Bookkeeper asked me recently how and by what methods one would appraise a proposed investment
OUTSOURCING DECISION EXAMPLE WITH EXPENSES ONLY COMPARISON Example USA INTRODUCTION This example shows how to compare two investments that; Involves an investment in equipment Incurs operating costs Uses
FNE 215 Financial Planning Chris Leung, Ph.D., CFA, FRM Email: email@example.com Chapter 2 Planning with Personal Financial Statements Chapter Objectives Explain how to create your personal cash flow
CHAPTER 9 Capital Budgeting Meaning The term Capital Budgeting refers to the long-term planning for proposed capital outlays or expenditure for the purpose of maximizing return on investments. The capital
Jim and Sally Sample for: Jim and Sally Sample 04/21/2015 $1,600,000 Assets + Estimated Entry Fee Refund $1,200,000 $800,000 $400,000 $0 1 2 3 4 5 6 7 8 9 10 11 Total assets at the end of each year Estimated
Chapter 20 Lease Financing ANSWERS TO END-OF-CHAPTER QUESTIONS 20-1 a. The lessee is the party leasing the property. The party receiving the payments from the lease (that is, the owner of the property)
6 Investment Decisions After studying this chapter you will be able to: Learning Objectives Define capital budgeting and explain the purpose and process of Capital Budgeting for any business. Explain the
Accounting Income, Residual Income and Valuation Ray Donnelly PhD, MSc, BComm, ACMA Examiner in Strategic Corporate Finance 1. Introduction The residual income (RI) for a firm for any year t is its accounting
CHAPTER 8 STOCK VALUATION Answers to Concepts Review and Critical Thinking Questions 5. The common stock probably has a higher price because the dividend can grow, whereas it is fixed on the preferred.