A company expects a constant free cash flow of 240 mil per year forever. if the WACC is 12%, what is the value of operations?

Q: The initial cost of an investment is $65,000 and thecost of capital is 10%. The return is $16,000…

A: A method of capital budgeting that helps to evaluate the present worth of cash flow and a series of…

Q: In 10 years a firm will have annual cash flows of 100 million. Thereafter, its cash flows will grow…

A: A theory that helps to compute the present or future value of the cash flows is term as the TVM…

Q: An investment costs $4,000 today. This investment is expected to produce annual cash flows of…

A: Initial Investment = $4,000Cash Flows:Year 1: $1,200Year 2: $1,400Year 3: $1,300Year 4: $1,100We can…

Q: If you insulate your office for $18,000, you will save $1,800 a year in heating expenses. These…

A: Formula: NPV = Present values of cash inflows - Present values of cash outflows. Deduction of…

Q: A DSL company has made an equipment investment of $40 million with the expectation that it will be…

A: Given information: Equipment investment is $40,000,000 Number of years is 10 Rate of return is 12%…

Net Present Value

Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.

Investment Decision

The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.  

Factors That Complicate Capital Investment Analysis

Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc. 

Capital Budgeting

Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.