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?