Case Study: The Investment Detective When reviewing the eight investment opportunities, I do believe that it is possible to rank the projects based on their cash flows. I also believe that ranking them just based on their cash flow would not be an accurate ranking. When you only consider the cash flow of an investment you only get a glimpse of the excess cash flow the company can profit from over the initial investment. Just looking at the cash flow does not take into consideration the account
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CASE STUDY The Investment Detective The essence of capital budgeting and resource allocation is a search for good investments in which to place the firm’s capital. The process can be simple when viewed in purely mechanical terms, but a number of subtle issues can obscure the best investment choices. The capital budgeting analyst is necessarily, therefore, a detective who must winnow good evidence from bad. Much of the challenges is knowing what quantitative analysis to generate in the first
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The Investment Detective 1. Can you rank the project simply by inspecting the cash flow? 1) Project Ranking based on simple inspection of cash flows: | | | | Rank | Project No | Net Cash Flow($) | 1 | 3 | 8000 | 2 | 5 | 2200 | 3 | 8 | 2150 | 4 | 4 | 1561 | 5 | 1 | 1310 | 6 | 7 | 560 | 7 | 6 | 200 | 8 | 2 | 165 | As per net cash flow priority has been indicated above. But cash flow does not consider time value of money. So it is not good measure for rank different
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The Investment Detective 1. Can you rank the projects simply by inspecting the cash flows? The company is able to perform initial ranking based on the cash flows overview, although it will not be sufficient to determine the true profitability. In this case the ranking of the projects is the following – 3, 5, 8, 4, 1, 7, 6 and 2. This ranking is supported by the excess of cash flows (CF). 2. What criteria might you use to rank the projects? Which quantitative ranking methods are better
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For the exclusive use of S. YAN UV0072 Version 2.2 THE INVESTMENT DETECTIVE The essence of capital budgeting and resource allocation is a search for good investments in which to place the firm’s capital. The process can be simple when viewed in purely mechanical terms, but a number of subtle issues can obscure the best investment choices. The capital-budgeting analyst, therefore, is necessarily a detective who must winnow bad evidence from good. Much of the challenge is in knowing what quantitative
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and Resource Allocation 17. The Investment Detective © The McGraw−Hill Companies, 2003 CASE 17 The Investment Detective The essence of capital budgeting and resource allocation is a search for good investments in which to place the firm’s capital. The process can be simple when viewed in purely mechanical terms, but a number of subtle issues can obscure the best investment choices. The capital-budgeting analyst is necessarily, therefore, a detective who must winnow good evidence from
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The Investment Detective Financial Administration FINC 5713-180 DR Roy Patin Fall 2013 10/22/2013. The Investment detective. The case is basically discussing the importance of Capital Budgeting and resource allocation. Capital budgeting is the whole process of analyzing projects and deciding which ones to accept and thus include in the capital budget. It is important for a company to evaluate proposed projects accurately because there are delicate issues that can obscure the best investment issues
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ranking obtained by simply inspection of the cash flows? 4. What kinds of real investment projects have cash flows similar to the cash flow below? Project Cash Flows Project Number Initial Investment (In thousands of dollars) Year
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Aplia: In addition to class preparation, for each chapter there are Aplia homework assignments, both practice and graded. Aplia is required of all students. Aplia’s homework questions and problems are tied to the textbook content and may not always agree completely with classroom discussions. Please read and comply with the Aplia instructions. For Aplia problems, use textbook formulas and 365 days in a year. Students are expected to complete all Aplia graded assignments by the specified due dates
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Professor Faulkender Investment Detective Case Questions The purpose of this case is to practice estimating the value created from taking on different projects and how those values change given differences in rates of return and project duration. We will look at different ways of evaluating capital budgeting decisions and see why Net Present Value (NPV) generates better decisions than other methods. Ignore the questions provided in the case itself. the Return on Investment (Excess of cash
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