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Angus Cartwright Capital Investment Analysis

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Net present value divided by original investment ... What assumptions are inherent in each calculation? Which assumptions should we question and why? ... – PowerPoint PPT presentation

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Title: Angus Cartwright Capital Investment Analysis


1
Angus CartwrightCapital Investment Analysis
  • Professor Doug Cerf
  • Donald Bren Graduate School of Environmental
    Science and Management
  • Financial Management (ESM 209)
  • Winter 2007

2
DeRights investment considerations
  • Goal of each of the cousins John and Judy DeRight
  • minimum leveraged return on investment of 12
    after tax

3
Analysis summary
  • Understand transaction and related cash flows
  • Net Present Value of cash inflows and outflows
  • Internal rate of return
  • The rate at which the present value of the
    inflows equals the present value of the outflows
  • Profitability index
  • Net present value divided by original investment
  • This method of analysis is main stream, however
    variants are acceptable

4
Applicability to Bren students
  • The analysis in Cartwright is similar to
    decisions regarding environmental capital
    investments
  • Cap and trade models
  • Set an aggregate cap for a set of entities or
    region
  • Allocate to entities
  • Reduce cap over time
  • Acid Rain
  • Burn and buy versus Scrub and sell
  • This case is my favorite case
  • Covered in ESM 284
  • Do not use this approach at home
  • You will get frustrated if you use this analysis
    if you are trying to decide if you should help
    (or buy) your teenager a car

5
Questions
  • What do the calculations in the various exhibits
    tell us?
  • How valuable are they?
  • What assumptions are inherent in each
    calculation?
  • Which assumptions should we question and why?
  • Which potential investment, if any, would you
    suggest for each of the investors? Why?
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