PD Capital Budgeting 3.14.2012 v4

PD Capital Budgeting 3.14.2012 v4 - ProblemDay:Capital...

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Problem Day: Capital  Budgeting
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Before We Begin…
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Some Service Activities…
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SERVESURFER Still Looking for Service Opportunities? Want to find them on Facebook? Now you can! apps.facebook.com/servesurfer http://www.youtube.com/watch?feature=player_embedded&v=do-3Ac8LN_s
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RUN FOR A CURE MARCH 17, 2012 rexleerun.byu.edu Register online or at a booth in the Wilk 9:00 am at BYU Outdoor REX LEE RUN
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Housekeeping Items POW Quiz (Mason Products Sequel)  this week due  Thursday at 10pm  (this one is hard, so budget your time accordingly) Ch. 10 Reading Quiz due Monday morning at 11am Thurs at 11am in 260 with Dr. Brau TA hours cancelled Thurs
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Today’s Agenda Prayer Tales of Financial Analyst Net Working Capital POW Help Depreciation o Tax Shield Initial Outlay Capital Budgeting o Start to Finish
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Tales of a Financial Analyst Working Under  Pressure “Fatigue makes cowards  of us all.” -Vince Lombardi What type of person are  you at 4:00am?
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Tales of a Financial Analyst Actual NPV in real life!
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Capital Budgeting - Components Depreciable  Amount Follow the Cash Flows!
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Working Capital – Conceptually Waterwand Pty Ltd was a successful manufacturer of gardening  products. Although the company had healthy sales, it also had a  growing cash flow problem. Like many manufacturers,  Waterwand suffered from a long cash flow cycle, including: 14 days to order and take delivery of raw materials. 32 days to manufacture and sell the product. 14 days to ship the product and issue the invoice. An average of 60 days in accounts receivable. That meant the company’s working capital was locked away for  120 days at a time. As a result, Waterwand was increasingly 
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STUFF YOU NEED TO KNOW WORKING CAPITAL Many projects require an increase in working capital  (inventory, cash, A/R).  The  standard convention   is  that working capital (WC) is included in the  calculation of initial outflow and is reversed at the  end of the project. Increased WC is an outflow at t=0 and an inflow at  the end of the project. What about changes in WC during the life of the  project?
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POW Help - NWC
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POW Help - NWC Remember – the CHANGE in NWC is what you want to  find  Usually, we only have NWC issues in year 0 and in the  terminal year…. But this question is a little more  complicated… Let’s go to Excel to figure this out!   Please take notes on this and ask questions, as there  are no more TA lab hours this week!
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Common Investment Cash  Flows 0 1 2 3 4 . . . . . N cash outlays Free cash flows from operations terminal flows
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Depreciation Tax Shield Firm A Firm B EBITDA $100 $100 Depreciation (non cash) -0 -20 100 80 Tax @ 40% -40 -32 Net Income 60 48 Depreciation +0 +20 Cash flow $60 $68 Save $8 in taxes due to depreciation!
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This note was uploaded on 03/15/2012 for the course FINANCE 301 taught by Professor Jimbrau during the Winter '12 term at BYU.

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PD Capital Budgeting 3.14.2012 v4 - ProblemDay:Capital...

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