Formula for the IRR is:
IRR = R1 + (R2 + R1) ? NPV1
(NPV1 – NPV2)
A discount rate estimated at 10% and 20% [pic]
IRR = R1 + (R2 – R1) x NPV1
(NPV1 – NPV2)
= 10 + (20 – 10) x ?0.657
?0.6570 – (-?0.3047)
= 10 + 6.57
= 16.83 %
To get a more accurate IRR, we narrow down the estimated rate to 16% and 17%
IRR = 16 + (17 – 16) ? 0... Showed first 250 characters
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By comparing these three IRR estimations, it was found that 16.48% (R1 = 16, R2 = 17) produces an NPV closest to zero. Hence, the IRR is 16.482%. The IRR decision rule is to accept an investment if the IRR is greater than the company’s target rate of return... Showed next 250 characters
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Accounting rate of return is also known as Return on Capital Employed (ROCE)
Accounting Rate of Return/ ROCE = Average annual accounting profit ? 100
Average annual accounting profit = Total Cash Profit – Total Depreciation cost
No of years
Total Cash Profit = (?2,000,000 ? 3 years) + 1 million
Total Depreciation Cost = Investment Cost – Residual Value
= ?5,000,000 – 0*
*Residual Value is 0 because the building is expected to yield at no residual value...
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Great Eastern Toys
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Designer Dolls’ Project – How to evaluate?
Within the scope of Finance course, we are asked to apply our acquired knowledge in the analysis of the case study “Great Eastern Toys”, in order to build a solid decision concerning whether a new project should be taken or not by this firm...
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sampa video, inc
1. What is the appropriate discount rate and the value of the project assuming the firm is going to fund it with all equity?
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To estimate Sampa Video’s cost of equity capital we used the CAPM model, in which rf refers to the risk free rate, to the market risk premium, and ? to the company Beta (Table 1)...
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Many formal methods are used in capital budgeting, including the techniques such as
• Net present value
• Profitability index
• Internal rate of return
• Modified Internal Rate of Return
• Equivalent annuity
• Net present value (NPV) or net present worth (NPW) is defined as the total present value (PV) of a time series of cash flows...
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terms, but a number of subtle issues can obscure the best investment choices...