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Investment Appraisal Project - Essay Example
Finance & Accounting
Pages 8 (2008 words)
INVESTMENT APPRAISAL PROJECT GRYON LIMITED ___________ Contents INTRODUCTION OF THE PROJECT 3 CALCULATION BASED ON DISCOUTNED CASHFLOW 5 SENSITIVITY ANALYSIS 7 THEORTICAL DISCUSSION BASED NPV AND IRR METHOD 9 CONCLUSION 12 INTRODUCTION OF THE PROJECT The company Gryon is considering an operational expansion and has decided to buy one of the two freehold lands available…
WACC=wdkd(1-T)+wpkp+wsks Where Kd = interest on debt Kp = cost of preference shares Ks = cost of shares and retained earnings. WACC is calculated by multiplying the cost of equity by the market value of the equity and cost of debt by the market value of the debt. Cost of equity can be defined as the minimum rate of return that a company must generate and offer to their investors in order to provide a return on their investment and for assuming some level of risk. If the company does not offer this risk to the investors, there is a chance that the shareholders might sell these shares in the market. Selling of the company shares can be interpreted as a negative sign for the financial outlook of the company and will put a downward impact on the market value of the company. Cost of company’s equity can be calculated through ‘Dividend Growth Model’ and ‘Capital Asset pricing model.’ The formula for dividend growth model is as follows. E = Do Ke - g Where E is the market value of the equity, Do is the recent dividend paid or the dividend projected for the next year, Ke is the cost of the equity and g is the growth rate of the dividend. ...
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