The results of the analysis lend favourably towards accepting the investment project. First it is important to note that based on the after tax cost of borrowing and a risk premium of 3.75%, a discount rate of 8.89% was deemed appropriate for the project. The majority of the investment indicators used to value the project use discounted cash flows to determine the investment’s profitability. This technique allows for comparison amongst different investment opportunities available, as it provides the total return that is expected to be achieved over the project’s horizon in current dollar terms.…
3. The project is a slam-dunk for the corporation because they are yielding an internal rate of return of 80%. The NPV of the future cash flows is significantly larger than the purchase costs of the assets.…
Calculating combinations of different projects will give Cynthia a better idea in which projects to invest in. NPV also provides proper rule for choosing mutually exclusive projects…
This report’s purpose is to be of assistance to the CEO of ABC Company to determine if the new project should be put into action and the way that it can be within the means financially through presenting information regarding the projected costs and returns. This decision-making report is intended to aid the CEO’s in internal decisions that are made. It depicts the capability of the projects possibility of making money for the company and its intentional purpose.…
Top management at Nucor Corporation has determined its own internal investment criterion in determining whether to accept or reject a new investment project. Currently, the company judges the potential success of a project by its ability to achieve a 25 percent return on assets after 5 years. This ratio measures how efficiently Nucor’s assets are able to generate revenue. Based off current market growth rate predictions, an investment in the CSP process will result in a return on assets of 29.33 percent. (Exhibit 1) This number exceeds the initial investment qualification by a promising margin of about 4 percent. Therefore, based on the internal criterion, this CSP process is a relatively safe and profitable investment.…
Primary consideration is the capital availability. If the firm has unlimited access to capital and no other investment options, Net Present Value would become recommended quantitative method. On the other hand, if the time horizon and payback period matter, the company should use Internal Rate of Return Calculation.…
It has already been established that the vast majority of projects that make it to this stage of the analysis have been considered to be profitable endeavors. Therefore, the main goal from this point forward is to consider how…
d. serves as an initial evaluation of the adequacy of an investment’s expected cash flows.…
Paper Products: The first firm is company J and the second firm is company I because company J has higher cost of goods sold and company I has a higher gross profit as seen in the financial data. This is due to company I being a smaller firm and company J having more costs and expenses.…
The global manufacturer would be company L because they would have higher selling, general and administrative costs, in this case 38.9 compared to 24.8.The company with the specialized tools from mobile franchise would have higher cost of goods sold, in this case 61.0 compared to 51.6.…
The Venture Capital Division of Boeing has four projects on the table with three additional leverages of debt. As the financial analyst for the division I was given the task of evaluating the four capital budgeting projects. After evaluating each project I will recommend which project will bring the most value to shareholders and the firm.…
Firms might encounter with two situations when deciding their budgeting process; whether the projects are independent or mutually exclusive. If firms have unlimited budget, they can undertake every project which can increase the wealth of company’s shareholders. However, most firms have constraints on the amount of capital they can raise and must use capital rationing. In the case of limited fund, firms have to choose which project can benefit them most. If the costs of profitable project exceed the budget constraint, firm cannot take the project even if it can produce higher profit. The sequence of project is also a crucial part of a project decision-making. For instance, when firm undertake a profitable project this year; it can create an opportunity to invest into another project one year from now. On the other hand, if the project being takes this year suffers from lose: firm might unable to take the second project one year from now.…
As rightly said in the case, the financial statements of no two companies are alike. The financial statements of companies in a particular industry, however, have many similarities and follow certain financial norms unique to that industry. Our analysis focuses on identifying these similarities.…
The firm may evaluate projects based upon the net present value (NPV) of expected cash flows for that project. In a strategic sense, the financial planning deals with the firm’s capital needs and decisions. One idea is to look at each project as its own mini-firm, an all equity project or company (Myers pg. 127). General Motors, for example, is based upon this strategic planning and financial planning. When a project is considered, looking at the NPV how it has been done. Will the project contribute to the bottom line or will it cost money. Larger companies may not be limited to the number and scope of projects as smaller companies are. On the other side, they may need larger projects to make a significant contribution to the firm.…
Recent literature has been emphasising on the need to consider the use of both financial and non-financial methods when dealing with project decisions. It is fundamental for a project to consider these techniques in order to measure a success of a project. This part of the paper is focused on critically analysing and evaluating these techniques and justifying why both are important. Some of these methods are very simple (e.g. payback period) while others are particularly sophisticated and complex (e.g. Net Present Value, Real Options Reasoning). Simpler methods do not take into account the time value of the money and do not include the risk…