Strategic Financial Management

1.3. In order to estimate the peso discount rate, assume that the International Fisher Effect (IFE) holds. Groupe Ariel's Euro hurdle rate for a project of this type was 8%. Assume that inflation rates are expected to be 7% in Mexico and 3% in France.

Free cash flows of the project for next five years can be calculated by adding depreciation values and subtracting changes in working capital from net income. In 2010, there will be a cash outflow of $2.2 million as capital expenditure. In 2011, there will be an additional one time cash outflow of $300,000 as an advertising expense. Using net free cash flow values for next five years and discount rate for discounting, NPV for the project comes out to be $2907, 100. The rate of return at which net present value becomes zero i.e.

Estimate the project’s operating cash flows for each year of the project’s economic life. (Hint: Use Table 2 as a guide)

Then we can use the following formula to calculate the WACC. The cost of debt is taken to be on an after tax basis to further to account for the depreciation tax shield.

22. Suppose that Hanna Nails, Inc capital structure features 45 percent equity, 55 percent debt, and that it’s before tax cost of debt is 5%, while its cost of equity is 9 percent. If the appropriate weighted average tax rate is 40 percent, What will be Hanna Nails’ WACC?

During the period of 5 years (from 1994 to 1998), if the discount rate is 20%, Waltham plant is the only one that has a positive amount in NPV. The total net present value of this plant is approximately $6.4 million, while the other two plants have a negative number (Santa Clara: negative $3,882,499; Greenfield: negative $29,386,827).

10. What is the correct capital structure and weighted average cost of capital for discounting the investment’s free cash flow. Assume a 35% tax rate. A correct response requires that you define capital structure and Weighted Average Cost of Capital (WACC) with a formula. When defining a term with a formula be sure that all the variables are also defined.

Given that the total profit over 8 years is $1.2375B (or $155M per year for 8 years), we will now compute the Present Value of this amount using the following formula:

General Foods is a large corporation organized by product lines. They are evaluating Super Project, the manufacture of a new powdered dessert. Crosby Sanberg, a financial analysis manager, must determine the value in accepting the proposal, along with J.C. Kresslin, the Corporate Controller. The Super Project will increase profit with a payback period of less than ten years. The proposed capital investment for the project is $200,000 ($80,000 for building modifications and $120,000 for machinery and equipment) and production would take place

See Table 1: Expected non-operating cash flow when the project is terminated at year 4 = 165,880$

By using the net-present-value method, determine whether STL Entertainment should acquire the boat. Assume a 14% desired return on all investments- round calculations to the nearest dollar.

Groupe Ariel SA of France is considering a project in Mexico. They need to analyze the net present value of the project, keeping in mind the exchange rates between Mexican Pesos and Euros in order to maximize their return. They also need to keep in mind the inflation rates over time and the risks involved with this type of investment.

This report demonstrates the evaluation of current performance of JD Sports Company. Method of Analysis includes Ansoff’s matrix and Porter’s generic growth strategies to discuss the nature of the market which JD Sports invest in. The financial methods are including the flexibility and stability of JD sports which judged by the liquidity, current ratio, operation capital, gearing and profit margin of this company. These figures could be collected from the annual report or balance sheet. This report analyzed the JD sport’s position in the market, and used generic and external growth method to expand market size. Such as acquired a lot stores to improve business profitability. Obviously, JD has expanded to the European

The actual production would begin in the third quarter of this year, therefore only half year’s depreciation should be counted on Equipment and IT communication in 2004 (According to Appendix A). The following years (2005-2008) incremental cash flows are computed by the same method. However as the IT equipment and furnishings would be depreciated on a straight line basis over 3 years, thus in year four (2007), there would be only half a year’s deprecation left and after that it will be used up. The last year’s net cash flow in 2009 should be included the extra terminal Value on that year, which includes 24 years’ residual value on building and one year and a half residual value on equipment totaled $2,990,412 with two assumptions of by using residual book values for the building and operating equipment and there will be no further NWS advantage after year 2009. Finally, by obtaining 6 years’ incremental cash-flows and discounting them back to time zero (with the estimate rate of return by 15%) lessing initial cost to get an appealing NPV of $1190528 (Luehrman, p. 3).

This project evaluates the discounted Net Present Value which shows the estimated cash flow. The cash flow forecast is for 10 year which incorporates International complexities as well as the cost of capital.