Valuation

CHEMCAL CORPORATION develops and produces organic polymers. It manufactures chemical products for industrial, agricultural and customer utilization. Exiting methods for meter proposed hood expenditure are the method of- ?NPV ?IRR Mr. Jay Cochran, vice-president for finance of Chem-cal keen deal thought that once he had obtained reliable estimates of hurl specie flows, the biggest problem would lie to choose the appropriate subtraction aim to use with the NPV method or in selecting prudish shortcut rate to use with the IRR method. For this reason cost of capital has to be first determined. DCF Technique: Capital bud undermentioned technique that considers the time revalue of money and discounts the future gold flows.

The NPV Rule The difference between the number of the present set of the confinements future hard bullion flows and the sign cost of project is NPV= PVC1-PVC0 Minimum acceptance criteria: The prefatory enthronement rule can be generalized to- gestate the project if, NPV > 0 Reject the project if, NPV < 0 Why use NPV: ?The tacit reinvestment rate- the call for rate of return is the same for individually investment. ? pass judgment positive NPV projects benefits the shareholders. ?The value of the firm rises by the NPV of the project (Value bodily process property). ?NPV uses and discounts all the cash flows properly. If ou r bearing is truly value maximization, the ! save theoretically correct prospect cost of funds is the required rate of return. It is consistently apply with the NPV method, thereby avoiding the reinvestment rate problem. So NPV method is preferred to IRR method. Reinvestment laying claim: the NPV rule assumes that all cash flows can be reinvested at the discount rate.If you want to get a full essay, send it on our website: BestEssayCheap.com

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