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Importance of Looking at Debt - Essay Example
Pages 8 (2008 words)
With a particular project, if Ct is a positive value, the project is in the status of cash inflow in the time of t. If Ct is a negative value, the project is in the status of cash outflow in the time of t. Appropriately risked projects with a positive NPV should be accepted…
The following sums up the NPV's various situations.
NPV = 0 the investment would neither gain nor lose value for the firm the project could be accepted because shareholders obtain required rate of return. This project adds no monetary value. Decision should be based on other criteria, e.g. strategic positioning or other factors not explicitly included in the calculation.
The project of this NPV is +ve and the IRR of this project, JPE should continue with the acquisition of Campbell. The IRR being greater than the cost of capital shows that the clearly shows that the project has a higher return than its cost. Therefore it should be accepted.
There is no quick and easy way for investors to get a handle on a company's debt situation. But as a starting point, debt ratios offer a valuable method for assessing a company's fundamental health. Looked at in context and over time, debt ratios can offer valuable signals of deepening debt problems. Recognizing those situations can save investors a lot of money.
While debt ratios tell investors little about a company's growth prospects or earning performance, these ratios are vital tools for gauging balance sheet durability. If, for instance, a recession or downward cyclical phase is on the way, balance sheet strength becomes more important for investors. ...
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