Question 1
Net present value computation is a financial budgeting technique used to enable assessment of proposed investments. It is alternatively referred to as the discounted cash flow technique. Specifically, it refers to the difference between the present value cash outflows and that of cash inflows that would result from making a given investment. This investment could be an expansion or purchase of a new plant, purchase of new machinery and addition of assets. In order to accept or reject a proposed investment, its net present value (NPV) is taken into consideration (Jackson, Sawyers & Jenkins, 2013).
When computed, NPV obtained is usually a positive value, zero or a negative value. Positive NPV is whereby the present value of cash
…show more content…
In this question, one of the fundamental concepts encountered is known as tax shield. This is whereby the taxable income for a company, corporation or individual is reduced by claiming allowable deductions like depreciation, charitable donations and mortgage interest. It is a strategy that ameliorates the value of a business entity as it reduces the tax liability of the entity.
Tax shield on depreciation is considered a cash inflow despite the absence of cash being physically received. This is because it is a form of saving stemming from proper asset management in order to save by lowering the tax bill. Depending on the method of calculating asset depreciation used, the net present value of an investment will vary (Shrieves, 2001). In our question, the technique considered is the straight-line method (Shrieves,
…show more content…
It is not only easy to compute, but also is very convenient when the pattern to how an asset has been used is unclear. If a salvage value of an asset is given at the end of its useful life, this amount is excluded in the calculations of tax allowances, meaning that the salvage value is subject to tax. In such a case, however, the salvage value is still considered a cash inflow because eventually, it is money received by the business after asset disposal. This value is usually first taxed, and then its present value is computed. The present value of the salvage value is then summed up to the equation and thus we are able to determine the NPV of the
I nventory Value + Purchases – Current Inventory Value = Costs of Goods Sold Cost of Goods Sold / Actual Net Sales = Food Cost percentage Jeremy states that the improvements to the inventory system over the last few years have helped him run his business better.
The estimates of fair value of reporting units are based on the best information available as of the date of the assessment. If the carrying value of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to such excess, limited to the total amount of goodwill allocated to the reporting unit. If the carrying value of an individual indefinite-lived intangible asset exceeds its fair value, such
Non-current assets are items owned by an entity that cannot be converted into cash within one year. Goodwill is the value of the company’s reputation, location, and brand. Goodwill is an intangible asset. It appears on the balance sheet when a company buys another and pays more for the company’s intangible assets than tangible assets. There are three sources of goodwill of Dollarama Inc.
There was not enough information to calculate capital expenditures that associated with the implement of new
After depreciation these parts are assumed to have an estimated value of 5% of the original
Next, the Comprehensive Environmental Response Compensation and Liability Act, also known as CERCLA is fundamentally a tax. CERCLA taxes chemical and petroleum industries. In five years over one billion dollars were accumulated in taxes. Most of that money went towards a trust fund that benefited clean hazardous wastes. This trust fund provides for cleanup, if no party is responsible for the wastes that go into the groundwater.
Thus, it is designed to provide a corporation with tax efficiencies and flexibility of operating in a partnership which is a feature of limited liability. It is now usable in most states because of the new structure of a type of hybrid business (Megginson et al.,
Outline the similarities and differences between the Single Index Model (SIM) and the Capital Asset Pricing Model (CAPM). Justify which of the two models makes a better assessment of return of a security (25 marks). To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results.
Financial Feasibility: represent the monetary condition of
From this, we are able to drive up the value of equity, while also building a tax shield to maximize our
In this manner, the $1,000,000 utility resource is financed with $12,800 of value
Mergers and Acquisitions and Shareholder Wealth: The theory of finance states that maximization of shareholder wealth should be the goal of every business organization. It is not clear, however, whether maximization of shareholder wealth is the main motivation behind Mergers and acquisitions. This has generated a lot of research interest the area. Unfortunately decades of intensive research have not been able to conclusively establish the impact of Mergers and acquisitions on shareholder wealth.
Q3. How much value, if any, does Buffett derive from the credit agreement? There are two parts of the credit agreement, the 8-year term loan and the penny warrants. The $400 million term loan accompanying with a $45 million revolving credit facility will give Buffett a chance to earn at an interest rate of 10.5%.
Outline the similarities and differences between the Single Index Model (SIM) and the Capital Asset Pricing Model (CAPM). Justify which of the two models makes a better assessment of return of a security (25 marks). To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results.