Net Present Value and Cash - 1056 Words

GROUP ASSIGNMENT CASE 23: DANFORTH amp; DONNALLEY LAUNDRY PRODUCTS COMPANY Purpose of Meeting: To make capital budgeting decision with respect to the introduction and production of a new product, a liquid detergent called Blast. Need to consider what types and which cash flows should be included in capital budgeting analysis. Damp;D was producing and marketing two major product lines: 1. Lift-Off: Low –suds, concentrated powder. 2. Wave: Traditional powder detergent. Questions amp; Answers: 1. If you were in Steve Gasper’s place, would you argue to include the cost from market testing as a cash outflow? If I’m Steven Gasper’s I would not include the cost from market testing as a cash outflow. The reason is because the†¦show more content†¦The reasons of this are:- a) When the machine was bought for Lift-Off productions the cost has been calculated; and b) In obtaining the machine and building for Blast productions no cash payment has been made. Since the production of Blast will occupy current excess capacity, no incremental cash flows are incurred; hence, none should be charged against Blast. 4. Would you suggest that the cash flows resulting from erosion of sales from current laundry detergent products be included as a cash inflow? If there was a chance that competition would introduce a similar product were Damp;D to fail to introduce Blast, would this affect your answer? Yes, it should be treat as an incremental cash flow for the reduction in the sales of the Lift-Off and Wave, referred to as erosion. These lost sales are included because it a cost (a revenue reduction) that the company must bear if it choose to produce the new product (Blast). It will not affect our answer if there was a chance that competition would introduce a similar product at time Damp;D fail to introduce Blast. This happen due to the fact that for constructs cash flow we ignore the competitor effect. 5. If debt is used to finance this project, should the interest payments associated with this new debt be considered cash flows? No. We discount project cash flows with a cost of capital that is the rate ofShow MoreRelatedNet Present Value and Net Cash Flow1220 Words   |  5 Pagesbudgeting? a Will an investment generate adequate cash flows to promptly recover its cost? b Will an investment generate an acceptable rate of return? c Will an investment have a positive net present value? d Will an investment have an adverse effect on the environment? 3 Which of the following is not considered when using the payback period to evaluate an investment? a The profitability of the investment over its entire life. b The annual net cash flow of the investment. c The cost of the investmentRead MoreNet Present Value and Cash Flow1400 Words   |  6 Pages000. Assuming a company tax rate of 30%, the firm’s cash flow from operations is: (A) $840,000 (B) $180,000 (C) $135,000 (D) $75,000 4. Given an effective annual interest rate of 14 per cent, the present value of a perpetuity consisting of yearly payments of $25,000 starting immediately is, rounded to the nearest dollar (A) (B) $203,571 (C) $178,571 (D) 5. $232,071 $156,641 If the present value of a perpetual income stream is increasing, the discountRead MoreNet Present Value and Initial Cash Outlay755 Words   |  4 Pagesï » ¿ Week 5 – Homework Answers P8-1. Suppose that a 30-year U.S. Treasury bond offers a 4% coupon rate, paid semiannually. The market price of the bond is $1,000, equal to its par value. a. What is the payback period for this bond? b. With such a long payback period, is the bond a bad investment? c. What is the discounted payback period for the bond assuming its 4% coupon rate is the required return? What general principle does this example illustrate regarding a project’s life, its discountedRead MoreNet Present Value and Free Cash Flow Essay example1101 Words   |  5 Pages Given the proposed financing plan, describe your approach (qualitatively) to value AirThread. Should Ms. Zhang use WACC, APV or some combination thereof? Explain. (2 points) * From the statement of AirThread case, we know that American Cable Communication want to raise capital by Leveraged Buyout (LBO) approach. This means ACC will finance money though equity and debt to buy AirThread and pay the debt by the cash flows or assets of AirThread. * In another word, it’s a highly levered transactionRead MoreCash Flow Per Period Of A Project790 Words   |  4 Pagesthe time in which the initial cash outflow of an investment is expected to be recovered from the cash inflows generated by the investment. It is one of the simplest investment appraisal techniques. Formula The formula to calculate payback period of a project depends on whether the cash flow per period of the project is even or uneven. In case they are even, the formula to calculate payback period is: Payback Period = Initial Investment Cash Inflow per Period When cash inflows are uneven, we need toRead MoreGuillermo Furniture Capital Budget Recommendation Essay example1087 Words   |  5 Pagescompares cash inflows and cash outflows instead of net income calculated using the accrual basis. Capital projects are typically evaluated using quantitative analysis and qualitative information. There are two capital budget evaluation processes that take into consi deration the time value of money Net Present Value (NPV) and the Internal Rate of Return (IRR) (Edmonds, 2007). Time value of money is necessary when comparing possible business investments that have different costs, cash flows, andRead MorePresent Value and Capital Budgeting1106 Words   |  5 PagesPart 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 + 85Read MoreCash Budget For 3 Months Ending 31st August 20151350 Words   |  6 Pages Question 1 Zahlee Ltd Cash budget for 3 months ending 31st August 2015 Appendix 1 June July August Receipts: Sales Cash 60’000 40’000 75’000 Credit (50%) 50’000 60’000 40’000 Sub-letting old warehouse 2’500 2’500 2’500 Loan received - - 30’000 Total receipts (a) 112’500 102’500 137’500 Payments: Purchases (suppliers) 60’000 50’000 50’000 Purchase of new transport vehicles 45’000 - 55’000 Wages 16’000 16’000 18’000 Overheads 19’000 23’000 21’000 Interest of bank loan 100 100 100Read MoreDifferent Aspects Of An Investment1433 Words   |  6 Pagesspending limit among the two. I made substantial analysis for the two corporations, as this is very significant for possible growth of our own company. I analyzed a five-year projected income statement and a five-year projected cash flow. I also determined the Net Present Value, and Internal Rate of Return among the two companies to make a decision. This paper also includes three peer-reviewed sources to combine with the theoretical explanations. Introduction The thought of acquiring another corporationRead MoreCapital Expenditure Valuation Methods1130 Words   |  5 Pagespayback period is the time it takes for a project or investments cash outflows to be recovered by cash inflows generated from the same project or investment. It is a very simple and commonly used capital budgeting technique. The formula used to compute the payback period is initial investment divided by cash inflow per period. You generally want to choose the investment that provides the shortest payback period, because you will get you cash back and it can be put toward other investments or projects