MGAB03H3 Lecture Notes - Lecture 10: Net Present Value
24 Jun 2018
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Department
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Professor
When you calculate payback period, you have to calculate
AARR (accrual accounting rate of return ( you have to minus
depreciation)
Required rate of return is the interest demanded by the bank for ex
NPV
Investment negative
IRR= is the interest rate, you plug it in
NPV= best method
With residual value you have to try and error
AARR, you need to subtract the depreciation (basically ROI)
!
"#$$ % &'()'*+,-+./0'1('/2'
3
#4$$$ 5"#$$0 % 67$$
#4$$$ 5#$8"690:;<
28000 - 14000/10 = $1400
28000 - 14000
RRR= Required rate of return
On final exam: NPV is superior, even if other say go, but NPV says
no go, you don’t go
Chapter 14 :
Goal is to minimize tax:
Out ==> In
If you are in a high tax area, you want to transfer components to
low tax areas
-
Should you sell to another division in a low tax area at a high
price or low price (low is better to reduce profits and pay less
taxes in the high tax area)
-
If you are selling a product from low tax to high tax area, you
should sell the product at a high price so that the profits in
Canada are low
-
Types of Centers:
Cost center: HR/IT/Acct department don’t generate revenue, thus
accountable for costs only
Revenue Center: managers are only responsible for how much
dough they bring in
Profit Center: Manager is responsible for both revenue and
expenses, measured for getting as much money as possible and low
expenses (ROI)
Investment Center: Manager accountable for investment (buying
equipment etc.), revenue & costs
Distress Pricing
When market price < Cost, it is better to buy from outside.
Dual pricing (different price) : - Buyers/ Cost, -Seller/ selling price
Lecture 10 - Chapter 13
Thursday, June 7, 2018
3:15 PM
Document Summary
When you calculate payback period, you have to calculate. Aarr (accrual accounting rate of return ( you have to minus depreciation) Required rate of return is the interest demanded by the bank for ex. Irr= is the interest rate, you plug it in. With residual value you have to try and error. Aarr, you need to subtract the depreciation (basically roi) (7200 ) On final exam: npv is superior, even if other say go, but npv says no go, you don"t go. If you are in a high tax area, you want to transfer components to low tax areas. Should you sell to another division in a low tax area at a high price or low price (low is better to reduce profits and pay less taxes in the high tax area) If you are selling a product from low tax to high tax area, you should sell the product at a high price so that the profits in.
