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Strategic Corporate Finance Mod 5 Case Assignment - Essay Example
Finance & Accounting
Pages 5 (1255 words)
Module 5 Case Assignment Name of the Writer Name of the Institution Net Present Value, Mergers, and Acquisitions Part I: Calculating NPV and Capital Budgeting Decision Every company has a mix of assets and liabilities that make up its balance sheet. Companies are also faced with financial and investment decisions from time to time as they seek to survive and grow in the marketplace…
Net Present Value (NPV) method is one of the most important methods used to make capital budgeting decisions by businesses today. NPV method is important because it helps financial managers maximize shareholders’ wealth by making better capital budgeting decisions. Basically we can determine whether a project is worth investing in or not by comparing the present value of inflows and outflows discounted at the rate of cost of capital. If the PV of net flows is positive (PV of inflows is more than the PV of outflows over the life of the project), we consider it a good investment because it will increase shareholder wealth, and vice versa. In other words, must have a positive net inflow. In the given scenario, T-Mobile Corporation is considering a new project that will cost $3,219,000. This is the initial cash outflow. The company has provided the following cash flow figures: Year Cash Flow 0 -$3,219,000 1 350,000 2 939,000 3 1,122,000 4 500,000 5 400,000 We are told that T-Mobile’s cost of capital discount rate is 4%, and are required to calculate the project's net present value. ...
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