Strategic Corporate Finance Mod 5 Case Assignment - Essay Example

Only on StudentShare

Extract of sample
Strategic Corporate Finance Mod 5 Case Assignment

Net Present Value (NPV) method is one of the most important methods used to make capital budgeting decisions by businesses today. NPV method is important because it helps financial managers maximize shareholders’ wealth by making better capital budgeting decisions. Basically we can determine whether a project is worth investing in or not by comparing the present value of inflows and outflows discounted at the rate of cost of capital. If the PV of net flows is positive (PV of inflows is more than the PV of outflows over the life of the project), we consider it a good investment because it will increase shareholder wealth, and vice versa. In other words, must have a positive net inflow. In the given scenario, T-Mobile Corporation is considering a new project that will cost $3,219,000. This is the initial cash outflow. The company has provided the following cash flow figures: Year Cash Flow 0 -$3,219,000 1 350,000 2 939,000 3 1,122,000 4 500,000 5 400,000 We are told that T-Mobile’s cost of capital discount rate is 4%, and are required to calculate the project's net present value. ...
Download paper

Summary

Module 5 Case Assignment Name of the Writer Name of the Institution Net Present Value, Mergers, and Acquisitions Part I: Calculating NPV and Capital Budgeting Decision Every company has a mix of assets and liabilities that make up its balance sheet. Companies are also faced with financial and investment decisions from time to time as they seek to survive and grow in the marketplace…
Author : rrogahn

Related Essays

The analysis by Steel Tube division of Engineering Products Plc accountant
Center of discussion in this paper is a financial analyst for Steel Tube division of Engineering Products Plc named Roger Davis. He is having a tough time convincing the management for a project proposal. The analysis by his accountant and the additional information obtained from other sources has added to his woes. Roger Davis needs to convince his managing director about the viability of a new proposal for computer numerically controlled (CNC) milling machine. The MD is not ready to spend money on the project unless it can start yielding profits within 3 years. However, the accountant’s...
7 pages (1757 words) Assignment
Strategic Corporate Finance. All about IPOs
Another option is to raise capital from the public. A corporation is a legal entity separate from the lives of its owners and if conditions are favorable, it can raise capital through an Initial Public Offering (IPO) in the equity market or alternatively through issuing bonds in the debt market. Obviously the public response would depend on the viability of the company, its future prospects and line of business, as well as the reputation and business acumen of its management. Types of IPOs, Advantages & Risks Generally speaking, at the present time there are two options as to how an IPO can be...
4 pages (1004 words) Essay
Strategic Corporate Finance
An investor must be paid some price for this sacrifice (Brigham & Weston, 2009). So the future value of the dollar-assuming a positive rate of interest-will always be higher than its present value. Another reason for interest being charged on capital is that capital is one of the factors of production that can give access to men, materials and machinery, help automate and speed up processes and productivity in a short time and this is why the demand for capital attracts a price called the interest rate (Rao, 2011). Why is it Important for Financial Managers to Understand the Concept of Time...
4 pages (1004 words) Essay
Strategic Corporate Finance
Quite simply, the investors also have their own set of motivations and would only be willing to invest in a corporation’s equity or debt if it meets with their required rate of return. They may be willing to take a risk in investing in a particular firm if the returns from this are higher than that offered by US Treasury bonds with one year to maturity. Since the rate of return on these bonds are guaranteed by the US Government, they are thought to be a riskless investment, assuming that the US Government will never default on payment of the principal and interest on the due dates....
5 pages (1255 words) Essay
Strategic Corporate Finance
That is why it is usually the most preferred form of business for expansion purposes. Mergers and acquisitions are the two usual ways in which ownership is extended in the corporate landscape. A business can either buy out the ownership rights of another company in exchange for cash or shares, or the two entities can merge their businesses to form a new company altogether. The first is called an acquisition and the second a merger. In this assignment, I will be considering the advantages and disadvantages of the Coca Cola Company merging with other firms within the industry. Choice of Company...
3 pages (753 words) Essay
Corporate Finance Assignment
Sales increase from year 1 to year 2 by 1.5 times, but in the 3rd year it appears that the sales only increase by 1.33 times, which shows a decline as compared to the previous financial year. Variable cost is included as a percentage of the sales for the month, which is 30% of the sales for the year. All the fixed costs are assumed to be directly attributable to the project and thus are included in the cash flows. As mentioned in the project, the useful life of the facility will be three years, thus it will be depreciated on a straight line basis over three years. Depreciation is a non-cash...
7 pages (1757 words) Essay
Strategic Corporate Finance ASSIGNMENT 2
The company had ?1.69 worth net assets per share which has been improved to?1.72 in 2011. b) Cost of Capital The following are the computations in respect of calculating the weighted average cost of capital for Marks & Spencer. The cost of equity of M&S is found to be 4.5% whereas cost of debt is found to be 4%. The overall weighted average cost of capital after accounting for the value of equity and value of debt, is found to be 4.33%. Cost of Equity (CAPM)     Re = Rf + Beta (Risk Premium)       = 0.03 + 0.75 (0.02)     Re = 4.50% Cost of Debt     Rd = Annual Coupon   Current Bond...
10 pages (2510 words) Essay
Got a tricky question? Receive an answer from students like you! Try us!