Present Value and Capital Budgeting - 1106 Words

Part I A. Present Value with Discount rate of 7% = 15000/(1+7%) = 15000/1.07 = $14,018.69 Present Value with Discount rate of 4% = 15000/(1+4%) = 15000/1.04 = $14,423.08 B. Account A - Present Value with Discount rate of 6% = 6500/(1+6%) = 6500/1.06 = $6,132.08 Account B - Present Value with Discount rate of 6% = 12600/(1+6%)^2 = 12600/1.1236 = $11,213.96 C. Present Value of Gold Mine 7% = 4900000/1.07 + 61,000,000/(1.07)^2 + 85,000,000/(1.07)^3 = 45,794,392.52 + 61,000,000/1.1449 + 85,000,000/1.2250 = 45,794,392.52 + 53,279,762.42 + 69,385,319.54 = $168,459,474.48 By using the same concept above we can determine the present value of Gold Mine. Present Value of Gold Mine @ 5% = 175,421,660.73 Present Value of Gold Mine†¦show more content†¦Year | Cash flow | Discount rate | Discount factor | Discounted cash flow | 0 | -$815,000 | 1% | 1.00 | -$815,000 | 1 | $141,000 | 1% | 1.01 | $139,604 | 2 | $320,000 | 1% | 1.02 | $313,695 | 3 | $440,000 | 1% | 1.03 | $427,060 | | | | Net present value | $65,358 | If the discount rate is 4%, what is this project’s net present value? Year | Cash flow | Discount rate | Discount factor | Discounted cash flow | 0 | -$815,000 | 4% | 1.00 | -$815,000 | 1 | $141,000 | 4% | 1.04 | $135,577 | 2 | $320,000 | 4% | 1.08 | $295,858 | 3 | $440,000 | 4% | 1.12 | $391,158 | | | | Net present value | $7,593 | If the discount rate is 10%, what is this project’s net present value? Year | Cash flow | Discount rate | Discount factor | Discounted cash flow | 0 | -$815,000 | 10% | 1.00 | -$815,000 | 1 | $141,000 | 10% | 1.10 | $128,182 | 2 | $320,000 | 10% | 1.21 | $264,463 | 3 | $440,000 | 10% | 1.33 | $330,579 | | | | Net present value | -$91,777 | If the discount rate is 18%, what is this project’s net present value? Year | Cash flow | Discount rate | Discount factor | Discounted cash flow | 0 | -$815,000 | 18% | 1.00 | -$815,000 | 1 | $141,000 | 18% | 1.18 | $119,492 | 2 | $320,000 | 18% |Show MoreRelatedNet Present Value and Capital Budgeting Process748 Words   |  3 Pages Introduction Investmentgt;gt;Capital Budgeting: The management of long-term (fixed) assets. Ensures investment projects create (vs destroy) value. Financegt;gt;Working capital management: The management of short-term assets and liabilities. Ensures cash inflows = cash outflows at all times. Financegt;gt;Capital Structure: The management of long-term financing. Balances debt amp; equity to maximize value. Payoutgt;gt;Dividends and Share Repurchases: The management of discretionaryRead MoreStryker: Net Present Value and Capital Budgeting Process1100 Words   |  5 Pages 1. What are the missions of CERs and the capital budgeting process at Stryker? Mission: Standardize and formalize the capital budgeting process. The CERs and capital budgeting process were implemented so that a more formal process of requesting capital expenditure and approving them would be applied. All this was put in place to support cash flow targets and maintain Stryker’s 20% growth benchmark. To what extent have they been shaped by elements of corporate finance theory? They areRead MoreCapital Budgeting Techniques Like Net Present Value1332 Words   |  6 PagesIntroduction The following paper analyzes a project from financial perspectives using the capital budgeting techniques like Net Present Value (NPV) and Internal Rate of Return (IRR). Background My dad has a textile business, involved in embroidery and painting of the fabric. I have been visiting my dad’s office complex and observing the whole process of clothes manufacture. The most important asset for the business is a large machine required for whole painting process. The existing machine withRead MoreCapital Budgeting : Budgeting Techniques817 Words   |  4 PagesCOMPARING CAPITAL BUDGETING TECHNIQUES In a company, when evaluating multiple opportunities for investment, capital budgeting is an important tool that is used. Every company has a certain amount of capital available that they need to use in the most effective way possible. Capital budgeting involves analysis techniques, planning and justifying how capital dollars are spent on long term assets and projects. It provides methods through which projects are evaluated to decide whether they make senseRead MoreEssay on Capital 20Budget 20Analysis 20Group 20P1648 Words   |  7 Pagesï » ¿ Capital Budgeting Analysis Amanda Kocanda, DeUndre’ Rushon, HuongTran, Morgan Gibreal MBA 612, Financial Strategy October 28, 2014 Bellevue University Abstract Within this paper, an overview of the general capital budgeting process and how it is implemented within organizations is defined and reported. Key terms related to capital budgeting are also defined. Risk analysis based on the Net Present Value (NPV) is performed on the salvage values before and after sales tax valuesRead MoreCapital Budgeting Process Should Be Utilized1432 Words   |  6 Pagessome type of investment(s), in the form of acquisition, and or merger. In the world of business, capital budgeting is one of the most important steps that a company or organization can take. This process is called Capital budgeting. Capital budgeting is a process that attempts to determine the future. Before any large project begins, the capital budgeting process should be utilized. Without capital budgeting, your company could make a fatal mistake. A company or organization that is looking to investRead MoreCapital Budget Process With Expansionary Versus Replacement1273 Words   |  6 P agesCapital Budget Process with Expansionary Versus Replacement This report is a comparative analysis of the capital budget process during making decision of expansionary versus replacement. With the objective it is the goal to maximize the wealth company and its shareholders. This process can include expansion or replacement or replacing them and which ones better show capital budgeting will help in processing the difference. Replacement decision concerns whether an existing asset should replaced byRead MoreP Jain School Of Global Management1202 Words   |  5 Pageswork (except where acknowledged) and has not been submitted for academic credit previously in whole or in part. a) What did you learn about capital budgeting? Capital Budgeting gives us the answer to â€Å"if it is worth putting money or capital into a project†. It is a decision making tool for a company or an individual who is looking to invest his capital and has multiple options which can be mutually exclusive or not. For example if a company is looking forward to buy a machine for its factory thenRead MoreCapital Budgeting Case Essay1167 Words   |  5 Pages1 Capital Budgeting Problem MBA612, Dr. Schieuer By: Dean Anderson, Terry Sutton, Sawan Tamang, Karuna Mishra, 2 Capital Budgeting Process: Capital budgeting (or investment appraisal) is the planning process used to determine whether an organizations long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures (SullivanRead MoreCapital Budgeting Scenarios Essay example886 Words   |  4 PagesCapital Budgeting Scenarios Shannan Coleman FIN/486 September 23, 2012 Sal Sadiq Capital Budgeting Scenarios Capital Budgeting: Proposal A – New Factory Proposal A is to build a new factory to decide if this would be a feasible move for the company they need to perform a net present value analysis. To do this they will only need to look at the incremental cash flows, which are as follows: 1. Initial investment of $10 million that will be the cost to build the new factory. 2. Sales