Business Finance

EEC calculated the amount of time involved the anticipation of its cost ($3 million). The timeline in recovering their cost of investment ($2 million) initially for the foundation of this investment any profit made in the future of this investment will be justified as a profit for the company. If EEC can anticipate a fast return on its investment it is a profitable wise decision in making the investment financial, it is considered to be an easier way of formulating investments financially. On the basis of one year all cash flows is added together equal to the sum of $2 million originally invested, then it is divided by the annual cash flow of $500,000. The calculation of the payback period would equal four years. After this time frame any financial proceeds will be considered profitable for the company. I conclude that the timeframe is adequate in comparison of the investment in this worthwhile investment financial venture for the company.

cognizant of the fact that the choices he makes can affect the price a buyer pays

30) Calculate the IRR for the following investment project: initial investment is $75,000; inflows are $20,000 for the next five years; required rate of return is 15%. (Round your answer to the nearest whole percentage)

* A new project idea which requires an investment of $2 mm and will generate total cash flows (including any salvage or terminal value) next year of either $4mm (recession) or $8mm (boom). The firm has not yet raised the cash to make this investment, but the market is aware of the investment opportunity.

2. What do the results say about how firms in this industry can deliver strong financial returns in different ways?

9. You are analyzing the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?

recommendation on the purchase based on (1) a given rate of return of 15% (Task 4) and (2) the

Thus, by year three the company will be making a profit off the investment as year three is 86.73 million profit by 55.35 cost giving the company a 31.38 million dollar surplus. Generally, a period of payback of three year or less is acceptable (Reference Entry) causing this project to be viable based off the payback analysis. Although, these calculations are flawed. The reason for this is because the time value of money is not taken into effect when calculating payback periods which is where IRR can further assist in a more realistic financial picture (Reference Entry).

19. The accounting assumption that requires every business to be accounted for separately from other business entities, including its owner or owners is known as the:

C) What is the project’s internal rate of return (IRR)? Explain the economic rationale behind IRR.

1. The ACE Company has five plants nationwide that cost $100 million. The current market value of the plants is $500 million. The plants will be recorded and reported as assets at

The use of an accounting rate of return also underscores a project 's true future profitability because returns are calculated from accounting statements that list items at book or historical values and are, thus, backward-looking. According to the ARR, cash flows are positive due to the way the return has been tabulated with regard to returns on funds employed. The Payback Period technique also reflects that the project is positive and that initial expenses will be retrieved in approximately 7 years. However, the Payback method treats all cash flows as if they are received in the same period, i.e. cash flows in period 2 are treated the same as cash flows received in period 8. Clearly, it ignores the time value of money and is not the best method employed. Conversely, the IRR and NPV methods reflect that The Super Project is unattractive. IRR calculated is less then the 10% cost of capital (tax tabulated was 48%). NPV calculations were also negative. We accept the NPV method as the optimal capital budgeting technique and use its outcome to provide the overall evidence for our final decision on The Super Project. In this case IRR provided the same rejection result; therefore, it too proved its usefulness. Despite that, IRR is not the most favorable method because it can provide false results in the case where multiple negative

The case of the Investment Detective laid out the cash flows for us in each of eight different projects. Before doing any calculations we came up with the assumption that we could not rank the projects simply by inspecting the cash flows.

Internal rate of return (IRR) and Payback period “IRR of a project provides useful information regarding the sensitivity of the project’s NPV to errors in the estimate of its cost of capital” (Pierson et al.2011, pp.157).This proposal also shows the project is profitable by using Excel to get the IRR of 18.9%, which is

Many solutions have to be proposed to return the profits of the company to normal in the market and avoid the proportion of the decline in the simple stock market and this table helps to propose solutions and choose the best solution through the classification of solutions and choose the highest assessment. S1, S2 and S3 are the alternative solution and will evaluate each alternative solution based on Increase profit, Reduce Costs, Increase future opportunities, Competitive Advantage (M1, M2,M3 and