12BUSI408 - Capital Investment Decisions - BaldwinCo

# 12BUSI408 - Capital Investment Decisions - BaldwinCo - BUSI...

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Chip Snively Chip_snively@unc.edu Class 12 BUSI 408 Corporate Finance Spring 2012

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2 Group Assignments Finish Class 11 – “Residual Value” The Baldwin Company Case (Ch6) Agenda
3 Group Project Assigned Will be posted either Sunday or Monday Homework Catch up on Reading and HW Problems RWJ6: (both sets) Q – 1, 2, 4, 5,7, 9-12 P – 2,3,5,9,10-13,15,18,21,22,24,25,34 Next Class

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4 Basic Valuation Equation NPV = -I0 + Σ CFt/(1+r)t + RVN/(1+r)N Io = Cash investment at T=0 CFt = Cash flow at time T = t RVN = Residual value at end of life of project r = risk adjusted discount rate Economic life vs. corporate investment analysis horizon
5 “Traditional” Approach Calculate “Free Cash Flows” (FCF) We will also likely need to include a Salvage or Terminal Value at project (analysis) end Ignore financing costs (interest expense); this is taken into account in the discount rate Net Operating Profit After Tax (NOPAT)

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The Baldwin Company ASSUMPTIONS Costs of test marketing (already spent): \$250,000 Current market value of proposed factory site (which we own): \$150,000 Cost of bowling ball machine: \$100,000 (depreciated according to MACRS 5-year) Market value of machine at end of 5 years = \$30k
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## This note was uploaded on 02/27/2012 for the course BUSI 407 taught by Professor Bowen during the Spring '11 term at UNC.

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12BUSI408 - Capital Investment Decisions - BaldwinCo - BUSI...

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