NPV of Micron Technology:
1) elaborate present value (PV) of coin in period (CF)
PV of CF = CF1 / (1+r)t + CF2 / (1+r)t + CF3 / (1+r)t + CF4 /(1+r)t + CF5/ (1+r)t
Where: t = Periodic cash flow payments (years)
CF = Cash Flow Amount
r = Discount sum up = 5%
PV of CF = 350,000/(1+.05)1+939,000/(1+.05)2+1,122,000/(1+.05)3+500,000/(1+.05)4+
900,000/(1+.05)5
=333,333.33+ 851,700.68 + 969,225.79 + 411,353.35 + 705,163.36
PV of CF = 3,270,776.51
2) Calculate NPV
NPV = -3,219,000 + 3,270,776.51
NPV = $51,776.51
This project should be accepted. The positive solve present value signifies that future cash flow amounts be sufficient to cover the initial cash outflow. This project put down out add $51,776.51 to Micron Technologys value.
Capital budgeting is the planning process used by fiscal managers for do major capital investment decisions. Project evaluation involves identifying the possible projects relevant cash flows; the incremental changes to a firms overall cash flow (increase or decrease) that are of a direct effect of the decision to accept the project.
By estimating the incremental cash flow associated with each potential project, pecuniary managers are able to sic whether long term investments such as new equipment or machinery, new products, and new research and development projects, are a viable option worth pursuing.
Primarily, the stated objective of a publicly traded companies financial management team is the maximization of the wealth of its divisionholders. Shareholder wealth increases through the receipt of dividends and through the increase in the share price over time. Fluctuations in the share price throne help stockholders gauge the success of a recent financial management decision. Therefore a firms objective of maximizing shareholder wealth is interchangeable with the objective of maximizing the...
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