Milestone Three- Whitney Lawrence
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Southern New Hampshire University *
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550
Subject
Finance
Date
Apr 3, 2024
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5
Uploaded by SargentMorning13898
Whitney Lawrence
Southern New Hampshire University
FIN 550: Corporate Financial Management 19TW4
Milestone Three
July 5, 2019
IV.
Capital Budgeting Data
1.
Calculation of Net Present Value and Internal Rate of Return
If UPS is considering a potential investment project to add to their portfolio, the NPV
was calculated to be $15,404,422.60 and the IRR was calculated to be 19%.
2.
What are the implications of these calculations? In other words, based on each of the
calculations, and being mindful of the need to balance portfolio risk with return, would you
recommend that the company pursue the investment?
These calculations show a NPV of $15,404,422.60 and an IRR of 19%. Both calculations
show favorable values which could be accepted as the NPV is a positive number which means
potential positive cash flows and the IRR is greater than the WACC of 9% which is what we’d
want to see. Before we can provide any recommendations about whether or not the company
should reject or accept the offer for this project, we need to figure out what these calculations tell
us and what it means for the future of UPS. This can also be referred to as a risk-return tradeoff.
“The risk-return tradeoff is the trading principle that links high risk with high reward” (Chen,
2019).
3.
What is the difference between NPV and IRR? Which one would you choose for
evaluating a potential investment and why?
“The net present value (NPV) method discounts all cash flows at the project’s cost of
capital and then sums those cash flows. The project should be accepted if the NPV is
positive because such a project increases shareholders’ value” (Ernhardt & Brigham, pg. 441).
The internal rate of return (IRR) is defined as, “the discount rate that forces a project’s NPV
to equal zero. The project should be accepted if the IRR is greater than the cost of capital”
(Ernhardt & Brigham, pg. 441). NPV and IRR differ in numerous ways such as their meanings,
the way each is expressed, what they represent, decision making, rate for reinvestment of
intermediate cash flows, and variation in the cash outflow timing. For example, NPV is
expressed in absolute terms whereas IRR is expressed in percentage terms. NPV makes the
decision making process easier whereas IRR has no impact. Instances where timing of cash
flows is different, the IRR will be negative, or it may produce multiple IRR which could cause
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Related Questions
which one is correct please confirm?
QUESTION 19
Whipple Industries Inc. is in the process of determining its optimal capital budget for next year. The following investment projects are under consideration:
Required
Expected Rate
Project
Investment
of Return
A
$2 million
20.0%
B
$3 million
15.0%
C
$1 million
13.5%
D
$4 million
13.0%
E
$1 million
12.5%
F
$3 million
12.0%
G
$5 million
11.5%
The firm's marginal cost of capital schedule is as follows:
Amount of
Funds Raised
Cost
$0 - $6 million
12.0%
$6 million - $12 million
12.5%
$12 million - $18 million
13.5%
Over $18 million
15.0%
Determine Whipple's optimal capital budget (in dollars) for the coming year.
a.
$5 million
b.
$10 million
c.
$14 million
d.
$11 million
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Simple Investment Allocation Case:
This year, 2022 ABM Company selected your team to manage
their allotted budget amounting to 10 million pesos for
investment diversification portfolio. Your team was assigned to
handle the said account.
What would you choose?
Other investment assets or Alternatives to fixed income and
equities
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Problem 2
ABM Enterprise would like to evaluate/analyze an investment proposal.
Given the following:
Investment amount 450,000 (2022)
Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for the
succeeding years
Discount rate - 14%
a. NPV for the perio 2023 through 2029;
b. Total NPV using manual computation;
c. Total NPV using the Excel function; and
d. IRR rate.
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explain the image provided and give recommendation
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Simple Investment Allocation
Case:
This year, 2022 ABM Company selected your team to manage
their allotted budget amounting to 10 million pesos for
investment diversification portfolio. Your team was assigned to
handle the said account.
Question:
How would you allocate funds?
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Altman Z Score
2018
2019
2020
BHP
0.80
0.71
0.63
FMG
1.12
1.26
1.38
RIO
1.36
1.34
1.34
Discuss if this information will be useful in predicting financial faliure
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Assume your organization wishes to make a Php 200,000 investment with a private equity firm in 2021. Taking into account all of the risks, the current discount rate is 12%, and the revenue stream/dividends are as follows:
2022 50002023 60002024 70002025 80002026 90002027 100002028 11000
Determine the following:a. NPV for the period 2022 through 2028;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.
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Question content area top
Part 1
Assuming a 1-year, money market account investment at
2.282.28
percent (APY), a
1.391.39
percent inflation rate, a
2525
percent marginal tax bracket, and a constant
$50 comma 00050,000
balance, calculate the after-tax rate of return, the real rate of return, and the total monetary return. What are the implications of this result for cash management decisions?
Question content area bottom
Part 1
Assuming a 1-year, money market account investment at
2.282.28%
(APY), a
2525%
marginal tax bracket, and a constant
$ 50 comma 000$50,000
balance, the after-tax rate of return is
1.711.71%.
(Round to two decimal places.)
Part 2
Assuming a 1-year, money market account investment at
2.282.28%
(APY), a
2525%
marginal tax bracket, and a constant
$ 50 comma 000$50,000
balance, the after-tax monetary return is
$855855.
(Round to the nearest dollar.)
Part 3
Given an after-tax return of
1.711.71%
and an inflation rate of…
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TOPIC 6: CAPITAL BUDGETING TECHNIQUES
ABC Manufacturing is considering two (2) mutually exclusive investments. The company
wishes to use a CAPM-Type risk-adjusted discount rate (RADR) in its analysis. ABC's
managers believe that the appropriate market rate of return is 10%, and they observe
that the current risk-free rate of return is 5%. Cash flows associated with the two (2)
projects are shown in the table below
Project x
$110,000
Project y
$120,000
Year
Net Cash Inflows (NCFt)
1
$40,000
$32,000
2
$40,000
$42,000
3
$40,000
$48,000
4
$40,000
$56,000
Answer the following questions:
a.
Use a risk-adjusted discount rate approach to calculate the net present value
of each project, given that project X has a RADR factor (Risk Index) of 1.20
and project Y has an RADR factor (Risk Index) of 1.4. Please note that the
RADR factors are similar to project betas.
b. Discuss your findings in part a and recommend the preferred project.
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Return on capital employed critical analysis
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Question 1
SUPERIOR Company Limited is a large conglomerate company in United Kingdom
and is considering the following projects for inclusion in its capital budget for year
2021. The projects have equal risks and the capital outlay required is as follows:
Project
Investment required
1
2
3
4
5
£'000
24,000
9,600
7.000
4,800
3,200
1,400
Return
£'000
5,520
3,072
980
864
640
392
As the Divisional Manager, you are to decide which of the projects to accept. The
company has a cost of capital of 15% with £60million available to the division for
investment purposes.
Required:
Compute the total investment, total return on capital invested and residual income on
each of the following assumptions, indicating the preferred project:
a. The Company has a rule that all projects promising at least 20% or more should
be accepted.
b. The divisional manager is evaluated on his ability to maximise his return on
capital investment.
c. The divisional manager is expected to maximise residual income as…
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solve a( i,ii,iii) please for the image provided.
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Consider the return of investment as given in the following table:
Year
2016
2017
2018
2019
2020
Amount (RM)
5000
5175
5394.94
5705.15
6047.46
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Review Problem 9 # 16 (LO1)
For the five-year period ended October 31, 2022, a North American Resource Fund had a compound annual return of 7.99% compared
to the average annual five-year returns of -0.337% for funds in the same category. How much more would an initial $1000 investment
have earned over the five-year period in the North American Resource Fund compared to a $1000 investment fund earning the
average rate of return? (Round the intermediate steps and the final answer to 2 decimal places.)
The North American Resource Fund earned
more
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PLS ANSWER ASAP
The source of funds for capital investment, which would hold true for all alternatives, is detailed in the table below.
Source
% of Capital Invest Requirement
Cost of Money (%)
Short term debt
16
12
Common stocks
2
15
Marketable securities
?
10
What is the MARR of the project? Answer in %, round your answer to 4 decimal places.
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Accounting provide a. And. b
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ABC Enterprise would like to evaluate/analyze an investment proposal. Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for the succeeding years Discount rate - 14%a. NPV for the period 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.EXCEL COMPUTATION AND FORMULA
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Accounting question
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Need answer the financial accounting question
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Managerial Accounting
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QUESTION 1
Suppose that you are working as a capital budgeting analyst in a finance department
of a firm and you are going to evaluate two mutually exclusive projects by implementing different
capital budgeting techniques. The cash flows for these two projects are given below.
CASH FLOW (A)
-$17,000
8,000
7,000
5,000
3,000
CASH FLOW (B)
-$17,000
2,000
5,000
9,000
9,500
YEAR
3
4
1 Calculate the Payback Period of each project. Which project should you accept
according to this method? Explain whether the Payback Period is or is not an appropriate
method in this case.
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Question 8
Over the first 9 months of 2021, FNBA performed extremely well versus BAA regarding
Yield on earning assets
O Non-interest income
Cost of funding earning assets
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QC 30.
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Q¹
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financial management ch 11 quiz
please show work, thank you.
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ABC Enterprise would like to evaluate/analyze a potential investment.. Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for the succeeding years Discount rate - 14%a. NPV for the perio 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.
arrow_forward
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Related Questions
- which one is correct please confirm? QUESTION 19 Whipple Industries Inc. is in the process of determining its optimal capital budget for next year. The following investment projects are under consideration: Required Expected Rate Project Investment of Return A $2 million 20.0% B $3 million 15.0% C $1 million 13.5% D $4 million 13.0% E $1 million 12.5% F $3 million 12.0% G $5 million 11.5% The firm's marginal cost of capital schedule is as follows: Amount of Funds Raised Cost $0 - $6 million 12.0% $6 million - $12 million 12.5% $12 million - $18 million 13.5% Over $18 million 15.0% Determine Whipple's optimal capital budget (in dollars) for the coming year. a. $5 million b. $10 million c. $14 million d. $11 millionarrow_forwardSimple Investment Allocation Case: This year, 2022 ABM Company selected your team to manage their allotted budget amounting to 10 million pesos for investment diversification portfolio. Your team was assigned to handle the said account. What would you choose? Other investment assets or Alternatives to fixed income and equitiesarrow_forwardProblem 2 ABM Enterprise would like to evaluate/analyze an investment proposal. Given the following: Investment amount 450,000 (2022) Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for the succeeding years Discount rate - 14% a. NPV for the perio 2023 through 2029; b. Total NPV using manual computation; c. Total NPV using the Excel function; and d. IRR rate.arrow_forward
- explain the image provided and give recommendationarrow_forwardSimple Investment Allocation Case: This year, 2022 ABM Company selected your team to manage their allotted budget amounting to 10 million pesos for investment diversification portfolio. Your team was assigned to handle the said account. Question: How would you allocate funds?arrow_forwardAltman Z Score 2018 2019 2020 BHP 0.80 0.71 0.63 FMG 1.12 1.26 1.38 RIO 1.36 1.34 1.34 Discuss if this information will be useful in predicting financial faliurearrow_forward
- Assume your organization wishes to make a Php 200,000 investment with a private equity firm in 2021. Taking into account all of the risks, the current discount rate is 12%, and the revenue stream/dividends are as follows: 2022 50002023 60002024 70002025 80002026 90002027 100002028 11000 Determine the following:a. NPV for the period 2022 through 2028;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.arrow_forwardQuestion content area top Part 1 Assuming a 1-year, money market account investment at 2.282.28 percent (APY), a 1.391.39 percent inflation rate, a 2525 percent marginal tax bracket, and a constant $50 comma 00050,000 balance, calculate the after-tax rate of return, the real rate of return, and the total monetary return. What are the implications of this result for cash management decisions? Question content area bottom Part 1 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax rate of return is 1.711.71%. (Round to two decimal places.) Part 2 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax monetary return is $855855. (Round to the nearest dollar.) Part 3 Given an after-tax return of 1.711.71% and an inflation rate of…arrow_forwardTOPIC 6: CAPITAL BUDGETING TECHNIQUES ABC Manufacturing is considering two (2) mutually exclusive investments. The company wishes to use a CAPM-Type risk-adjusted discount rate (RADR) in its analysis. ABC's managers believe that the appropriate market rate of return is 10%, and they observe that the current risk-free rate of return is 5%. Cash flows associated with the two (2) projects are shown in the table below Project x $110,000 Project y $120,000 Year Net Cash Inflows (NCFt) 1 $40,000 $32,000 2 $40,000 $42,000 3 $40,000 $48,000 4 $40,000 $56,000 Answer the following questions: a. Use a risk-adjusted discount rate approach to calculate the net present value of each project, given that project X has a RADR factor (Risk Index) of 1.20 and project Y has an RADR factor (Risk Index) of 1.4. Please note that the RADR factors are similar to project betas. b. Discuss your findings in part a and recommend the preferred project.arrow_forward
- Return on capital employed critical analysisarrow_forwardQuestion 1 SUPERIOR Company Limited is a large conglomerate company in United Kingdom and is considering the following projects for inclusion in its capital budget for year 2021. The projects have equal risks and the capital outlay required is as follows: Project Investment required 1 2 3 4 5 £'000 24,000 9,600 7.000 4,800 3,200 1,400 Return £'000 5,520 3,072 980 864 640 392 As the Divisional Manager, you are to decide which of the projects to accept. The company has a cost of capital of 15% with £60million available to the division for investment purposes. Required: Compute the total investment, total return on capital invested and residual income on each of the following assumptions, indicating the preferred project: a. The Company has a rule that all projects promising at least 20% or more should be accepted. b. The divisional manager is evaluated on his ability to maximise his return on capital investment. c. The divisional manager is expected to maximise residual income as…arrow_forwardsolve a( i,ii,iii) please for the image provided.arrow_forward
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