Essay

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3
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Therefore, Clink should only utilize the lease option is the lease is valued at less than £230,000 per year.

Some of the factors that might influence this decision would be the estimated life span of the machinery and the estimated resale value. The longer the estimated life span of the machinery and the greater the estimated resale value, the less likely the lease is to be a viable option. However, there is always a price at which the lease could be more effective.

However, Clink would want to consider the taxation effects of the two options before coming to a decision. Another consideration should be the robustness of the sales assumptions. The lease creates an obligation and that leverage increases the riskiness of the venture. This could affect the discount rate, but if we assume that we will leave the discount rate the same, we must understand that Clink will need…...

Essay

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2
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599

Net Present Value (NPV) decision rule. Describe how is the NPV rule is related to a cost-benefit analysis, and how is it related to the Valuation Principle.

The Net Present Value decision rule basically states that an investment should be accepted if its net present value is greater than zero, but otherwise rejected. The NPV of an investment is the present value of its cash inflow minus the present value of its cash inflow. One may compute NPV by identifying all cash flows, determining and applying the discount rate, and summing all of the present values. The valuation principle looks at earnings, revenues, cash flow, equity, dividends, and subscribers in order to determine the value of company. This whole value is then divided by the number of shares in a company, to determine a per-share value.

Explain the implication the Law of One Price has for the price of a financial…...

mlaWorks Cited

Investopedia. 2011. Perpetuity. Retrieved from:

http://www.investopedia.com/terms/p/perpetuity.asp

Investopedia. 2011. Present value of an annuity. Retrieved from:

http://www.investopedia.com/terms/p/present-value-annuity.asp

Essay

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5
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1444

NPV

Obviously the easiest and most error-free way of doing this is in Excel. Thus, we get the following table for the NPV calculation.

Flow

NPV (1-5)

$2,031,369.67

Total NPV

$281,369.67

Google should accept the project, because it has a positive net present value. All projects with a positive net present value add to shareholder wealth. Unless there is a comparison between two mutually exclusive projects, any project with a positive NPV should be accepted. In Google's case, given how much cash it has, it is hard to imagine that this project would be mutually exclusive to another.

How Acquisitions Work

The argument for an acquisition is that the purchasing company feels that the combined value of the two firms is greater than the sum of the parts. The first assumption is that markets are efficient, such that the stock price of Groupon reflects the expected present value of its future cash flows. Thus, if Google buys Groupon at…...

mlaReferences

Lachapelle, T. (2012). Buying groupon hard for anyone as growth slows: real m&a. Retrieved December, 2012 from http://www.bloomberg.com/news/2012-12-11/buying-groupon-hard-for-anyone-as-growth-slows-real-m-a.html?link=mktw

Yahoo! Finance: Google. (2014) Retrieved January 20, 2014 from http://finance.yahoo.com/q?s=GOOG&ql=0

Yahoo! Finance: Groupon. Retrieved January 20, 2014 from http://finance.yahoo.com/q?s=GRPN&ql=0

Essay

Pages:
6
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1672

Business -- Corporate Finance - Net Present Value - Mergers & Acquisitions, Parts 1 &

Google, Inc. is analyzing the possible added value of a project initially costing $1,750,000.00 Calculating the net cash flows for 5 years, the 15% cost of capital, the present value of cash flow for 5 years and the net present value all allow the reviewer to determine the added value that might encourage the company to pursue this project. Even as Google, Inc. is advised to pursue this project, its shareholders are advised against the acquisition of Groupon, as the downsides and risks considerably outweigh the possible advantages of acquisition. In contrast, Groupon shareholders should seek the acquisition based on the balance of advantages and disadvantages that such an acquisition would pose for them.

B. Body

Capital Budgeting Decision for Google Shareholders and Executives.

I recommend that the executives and shareholders of Google pursue the new project. The advisability…...

mlaWorks Cited

Brealey, R.A., Myers, S.C., & Allen, F. (2005). Principles of corporate finance, 8th Edition. New York, NY: McGraw-Hill.

Gaughan, P.A. (2011). Mergers, aquisitions and corporate restructurings. Hoboken, NJ: John Wiley & Sons, Inc.

Lachapelle, T. (2012, December 11). Buying Groupon hard for anyone as growth slows: Real M&A. Retrieved on December 16, 2013 from www.bloomberg.com Web site: http://www.bloomberg.com/news/2012-12-11/buying-groupon-hard-for-anyone-as-growth-slows-real-m-a.html?link=mktw

McClure, B. (2009, February 25). Mergers and acquisitions: Definition. Retrieved on December 16, 2013 from www.investopedia.com Web site: http://www.investopedia.com/university/mergers/mergers1.asp

Essay

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10
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2709

In other words: Lead users are individuals who use a product that has a number of unknown needs and who also benefit if they find a solution to those needs. This is unique in that it takes a different approach to traditional market research -- instead of collecting information from users at the center of the target market, it collects information about both needs and solutions from the leading edge of the target market. The method involves four steps: 1) Begin the Lead User process model; 2) Identify and extrapolate needs and trends; 3) Find out who the lead users are and interview them; 4) Refine data, use a workshop for concept design (Urban and von Hippe, 1988).

This idea is advantageous in that it helps with breakthrough products and leading trends prior to their becoming trends. It also establishes leadership in a market instead of reacting to trends. Innovative…...

mlaSources:

Hallowell, D. (January 2 005).w Analytical Hierarchy Processes -- Getting Oriented.

Six-Sigma.com. Cited in: http://www.isixsigma.com/index.php

Saaty, T. And Kirti, P. (2008). Group Decision Making. Pittsburg, PA: RWS Publications.

Essay

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5
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NPV

The net present value calculation is the best way to make a capital budgeting decision. NPV takes the incremental cash flows from a project and then discounts them to present-day dollars. This technique allows managers to not only identify the incremental cash flows associated with a project, but also allows them to discount future cash flows to present day, so as to account for the effects of inflation.

In this case, we have the following schedule of cash flows:

Cash Flow

If T-Mobile is considering a project with these flows, and the company has a discount rate of 4%, then the NPV of the project would be as follows:

Cash Flow

PV

NPV

Thus, this project has a net present value of $ -170.68. A project should only be accepted if it has a positive net present value. The reason for this is that the discount rate effectively represents the opportunity cost of capital (Brealy & Myers,…...

mlaWorks Cited:

ABMN. (2010). Sprint Nextel and T-Mobile merger rumors return after comments from Sprint CEO. American Banking & Marketing News. Retrieved March 26, 2012 from http://www.americanbankingnews.com/2010/07/15/sprint-nextel-nyse-s-and-t-mobile-merger-rumors-return-after-comments-from-sprint-ceo/

Baker, S. (2000). Perils of internal rate of return. University of South Carolina. Retrieved March 26, 2012 from http://hspm.sph.sc.edu/courses/econ/invest/invest.html

Brealy & Myers. (1996). What is the discount rate a firm should use in capital budgeting? McGraw-Hill Companies. Retrieved March 26, 2012 from http://people.stern.nyu.edu/kjohn/courses/session03.ppt

McClure, B. (2012). The basics of mergers and acquisitions. Investopedia. Retrieved March 26, 2012 from http://www.investopedia.com/university/mergers/mergers2.asp

Essay

Pages:
7
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1982

Financial Management

equired: I

Net Present Value (NPV) is a financial technique used in capital budgeting to evaluate the profitability of a project. To determine the viability of investment, it is critical to invest when NPV is positive or greater than zero. Organizations face option to move forward with the investment or to abandon an investment. When an NPV is greater than zero, the investment should be accepted. The decision tree is very critical in the investment analysis. Using NPV could assist in making right investment decision. From fig 1, John could only accept the investment since it is revealed that NPV of an investment is more than 1 which is profitable. However, when the profit is $0. It will not be possible for John to pursue the investment

Fig 1: Decision Tree

Profits

$1,000-$500=$500

In the contemporary business environment, investor should consider volatility of stock before making an investment decision. Typically, the variable behind…...

mlaReferences

Bodie, Zvi; Alex Kane, Alan J. Marcus (2008). Investments (7th ed.). New York: McGraw-Hill/Irwin.

Brigham, E.G. Houston, J.F (2011). Fundamentals of financial management. Cengage Learning, UK.

Brealey, R., Myers, S., and Allen, F. (2008) Principles of Corporate Finance, 9th edition, McGraw-Hill.

Hillier, D., Ross, S., Westerfield, R., and Jaffe, J. (2005) Corporate Finance, 7th edition, McGraw-Hill.

Essay

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4
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1448

Mobile Job Centers The mobile job centers will provide a positive net present value by Year 6, and will add value from that point onward. The project will be deeply in the red for most of the early years. The project has high upfront costs relating to the acquisition and outfitting of the buses. Furthermore, the ongoing cost structure is very high - costs like a Director's Assistant are absolutely unnecessary and driver salary is really high for that type of job. So there are some issues with the cost structure as presently proposed. On one hand, the project will have a positive NPV is left to run long enough, but those results are based on assumptions that may not hold up well into Year 6. Basically, the project's positive NPV rests on long-run cumulative effects, so in order to believe these projections, we would need to see some evidence that…...

Essay

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3
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952

Background

My company is considering a certain project undertaking. Our CFO is uncertain on whether or not to embrace the project. Having estimated the cash flows and NPV for the project, and having an estimated NPV as +$10, I am tasked with the role of analyzing the feasibility of the said project on the basis of the cash flows and NPV estimates. In so doing, I will address the kind of analysis I would make use of to make a case for or against the project and how I would justify my decision.

Discussion

It is important to note, from the onset, that businesses must ensure that all decisions made with regard to investments are sound. This is more so the case given that in addition to most projects requiring significant capital outlay, once a project commences, it could be quite expensive (or in some instances impossible) to abandon midway. The relevance of…...

Essay

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4
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Value of the Future Stream of Cash Flows Equals Value of the Discounted Amounts of These Cash Flows

If the bank is paying 4% annual interest rate on the banking account, the present value of the future $1,250 in one years is worth today

PV = FV/(1 + r)

And thus future value of $1,250 with the discount rate of 4% is approximately $1,202.

Account A is earning 6% interest yearly and will be worth $3,000 in one year, employing the mentioned above formula, the present worth of this account is $2,830. Account B. is earning the same 6% yearly interest rate and will be worth $4,000 in two years. Present value of this future payment can be calculated employing the following formula:

PV = FV/(1 + r)^

Future value is discounted by the 6% interest rate foregone by two years and that is why it is necessary to use square root of the discount…...

mlaReference:

Fundamentals of Corporate Finance, 3rd Ediction, Brealey and Meyers.

Fundamentals of Corporate Finance, 3rd Ediction, Brealey and Meyers.

Essay

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10
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2876

This in turn gives the financial professional better idea of the stock's risk behavior.

The equation used in this security market line relationship is as follows:

Mathis, CAPM, par. 3)

The measure of systematic risk is considered Beta or bi while E[Ri] is equal to the expected return on asset I and Rf is the risk-free rate. E[Rm] is the expected return on the market portfolio and E[Rm] - Rf is the market risk premium for the stock. Once the Beta is known then the risk and rate of return can be found.

APT is different because not only can forecast for the long-term, it can also work for the short-term scenario. This fact makes it the better of the two theories because it gives the financial professional more tools to assess risk and the rate of return. APT does this by using a model that captures all the data. All model estimations…...

mlaWorks Cited

Anonymous. "Risk and Return." The Economist (1991): 1-2.

APT: Risk Models and Portfolio Analytics. 22 Dec 2004 http://www.apt.com/..

Capital budgeting needs vision." Business Line. Islamabad: Jul 21, 2003. pg. 1.

Johnson and Johnson Financial Summary. Yahoo Finance. 22 Dec. 2004 http://finance.yahoo.com/q?s=JNJ&d=t ..

Essay

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2
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Business -- Corporate Finance - Net Present Value - Mergers & Acquisitions -- SLP Facebook

the Merger of Facebook, Inc. And Twitter, Inc.

Choosing a company to merge with Facebook, Inc. is a difficult task because Facebook, Inc. is a huge, valuable, cutting-edge company. When forced to choose a prospect for merger, I would settle on Twitter, Inc. (ahoo! Finance, 2013). First, both companies are in the Technology/Internet Information Provider field, so there is some commonality of technology and service (McClure, Mergers and acquisitions: Definition, 2009). Secondly, Twitter is state-of-the-art technology, using social networking and microblogging using instant messaging, SMS or web interfaces (Twitter, Inc., 2013) with an undeniable level of popularity. Meanwhile, Facebook, Inc. is constantly striving for cutting edge forms of providing technological information. Consequently, the two companies share an aggressive corporate culture that pursues the most advanced provision of internet-based information (McClure, Mergers and acquisitions: Why they can fail,…...

mlaYahoo! Finance. (2013, December 16). TWTR key statistics. Retrieved December 16, 2013 from finance.yahoo.com Web site: http://finance.yahoo.com/q/ks?s=TWTR+Key+Statistics

Yahoo! Finance. (2013, December 16). TWTR: Summary for Twitter, Inc. common stock. Retrieved December 16, 2013 from finance.yahoo.com Web site: http://finance.yahoo.com/q?s=TWTR

Yahoo! Finance. (2013, December 16). YHOO: Summary for Yahoo, Inc. Retrieved December 16, 2013 from finance.yahoo.com Web site: http://finance.yahoo.com/q?s=YHOO

Essay

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price for the Zartek technology, the most appropriate approach is to start by looking at the value it is expected to create. The net income for each of the years have been provided. However, under the concept of the time value of money, income received in the future will have a lower value compared to the same amount held today. Inflation will erode the value of money, while money held today may be invested for a return for the future (Drake & Fabozzi, 2009). Therefore, the first stage is to look at the future net revenue streams and discount them to allow for the time value of money. Giving a present value (PV). This is undertaken by discounting each year's net revenue on a compound basis (Drake & Fabozzi, 2009). As it is assumed the interest rate for the 5 years is 7%, the discount factor used will be…...

mlaReferences

Armstrong, G., Kotler, P., Harker, M., & Brennan, R. (2009). Marketing: An Introduction. Harlow: Pearson Education Limited.

Drake, P. P., & Fabozzi, F. J. (2009). Foundations and Applications of the Time Value of Money. Hoboken: John Wiley & Sons.

Nellis, J. G., & Parker, D. (2006). Principles of the Business Economics. Harlow: Prentice Hall.

Essay

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2
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436

Value

PV = $15,000 / (1+.07)^1 = $14,018.69.

At 4%, this is $15,000 / (1.04) = $14,423.08

The PV of Account A is 6500 / 1.06 = $6,132.07. The PV of Account B. is 12,600 / (1.06)^2 = $11,213.96

Income

PV

NPV

The present value of the entire income stream is $168,459,500.

Income

PV

NPV

Income

PV

NPV

hat this example shows is that the net present value of a future cash flow increases with a lower discount rate. The reason for this is that a lower discount rate means the less purchasing power of the future cash flow is diminished. So in this situation the gold mine is worth more at a 3% rate than a 5% rate, and both are worth more than at a 7% rate.

A. The project's NPV at a discount rate of 0% is $670,000

The project's NPV at a discount rate of 2% is $614,353

The project's NPV at a discount rate of 6% is $514,815

The project's NPV at…...

mlaWorks Cited:

Anthes, G. (2003) ROI guide: Net present value, retrieved August 2008 from: http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=78530

Investopedia. (2011). Profitability index. Investopedia. Retrieved November 7, 2011 from http://www.investopedia.com/terms/p/profitability.asp

McCracken, M. (n.d). Capital Budgeting. Retrieved August 2, 2007 from: http://teachmefinance.com/capitalbudgeting.html

Time Value of Money: Self Paced Overview. (n.d.). Retrieved January 10, 2011 from: http://www.studyfinance.com/lessons/timevalue/index.mv

Essay

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6
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1917

Value

A."Suppose your bank account will be worth $15,000.00 in one year. The interest rate (discount rate) that the bank pays is 7%. What is the present value of your bank account today? What would the present value of the account be if the discount rate is only 4%?"

PV at 7%

=$15,000/1.07

=$14,018.69

With a discount rate of 7.00% of the bank account and a span of 1 year, the projected cash flows of my money are worth $0.07 today, and this is less than the initial $15,000.00. The resulting PV of the $15,000 is $14,018.69,

However, PV at 4%

=$15,000/1.04

=$14,423.08.

Interpretation

With a discount rate of 4.00% of my bank account with a span of 1 year, the projected cash flows are worth $0.08 today, which is less than the initial $15,000.00 money in the bank in one year. The resulting PV of the money in the bank in one year will be $14,423.08.

B. "Suppose you…...

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