Capital Budgeting Case Study Name QRB 501 Date Instructor Name Capital Budgeting Study Case The purpose of this study is to understand Capital Budgeting and expenditures in Banking and how it is used. The intent is to answer questions such as the 5-year projected income statement, projected cash flow, Net Present Value (NPV), Internal Rate of Return (IRR) and which company to recommend acquiring based on the information given. We will look into these analysis to get a better understanding. 5 Year Projections Corporation B had higher expenses, depreciation and discount rate that corporation A. The tax rate was the same for both companies over a 5 year period.
What is the value of the shareholders' equity account for this firm? Shareholders' equity $_________ How much is net working capital? Net working capital $_________ FIN 571 complete paper here FIN 571 7. Shelton, Inc., has sales of $401,000, costs of $189,000, depreciation expense of
? How does systematic risk differ from unsystematic risk? What is meant by the Capital Asset Pricing Model? Describe how it relates to expected return and risk. Find the real return on the following investments: Stock Nominal Return Inflation A 10% 3% B 15% 8% C -5% 2% ?
In this approach, the economic value of the assets of a company is the result of a multiple of its earnings: operating profit multiple or multiple of EBITDA. The multiple can be considered a multiple or a multiple stock transaction. It comes from the observation of the value of similar businesses. To obtain the value of equity, we subtract the value of the bank debt and net financial and possibly other elements.
The Weighted Average Cost of Capital is the average of the costs of a company's sources of financing-debt and equity, each of which is weighted by its respective use in the given situation. By taking a weighted average, it shows how much interest the company has to pay for every marginal dollar it finances. A firm's WACC is the overall required return on the firm as a whole and, it is often used internally by company directors to determine the economic feasibility of expansionary opportunities and mergers. Also, WACC is the appropriate discount rate to use in stock valuation. No, I don’t agree with Cohen’s WACC calculation.
Investment Ratios These are concerned with assessing the returns and performance of shares in the business. Firstly I will calculate the profitability ratios: Profitability = the relationship between profit and the resources employed in earning it. PROFITABILITY RATIOS • Gross Profit Ratio • Net Profit ratio • Return on capital employed • Return on shareholders funds |GROSS PROFIT RATIO | |2008(£m) | |2007(£m) | | | | | | | | | Gross profit x 100 |= |402.5 x 100 | |376.1 x 100
Week 2 Problem Set Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_2_Problem_Set.docx, where flastname is your first initial and you last name, and submit it to the appropriate dropbox. Chapter 4 (pages 132–136): 3. Calculate the future value of $2000 in a. five years at an interest rate of 5% per year; b. ten years at an interest rate of 5% per year; and c. five years at an interest rate of 10% per year. d. Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)?
Under these conditions, what is the stock’s value? $2.00x1.05= $2.10=$26.25 0.13-0.05 0.08 Return to the original 15% required rate of return and assume a dividend growth rate estimate increase to 7% per year, what is the stock value? $2.00x1.07= $26.25=$26.75 0.15-0.07 0.08 Explain how each of the four (4) fundamental factors that affect the supply and demand for investment capital, and hence, interest rates, (namely productive opportunities, time preferences for consumption, risk, and inflation) affects the cost of money. In order for a company to be able to supply products, they must have money and be able to generate a profit. If they cannot generate a profit then they will not be able to provide the demand that consumers are requesting.