Finance and Accounting on Cooperate Finance

Contribution from the parents would be invested at 6% annually for a period of 3 years. However the remaining amount will be raised from Aunt Hilda’s gift. So, at the moment, the future value of the contribution from the parents would be calculated and then this future value from the parents would be deducted from $10,000 to find the future value of the amount that would be raised from the Aunt Hilda. Once this amount is identified, the present value of Aunt Hilda gift will be calculated to identify the amount required from her. Parents would contribute $5,000 and that will be invested for 3 years at 6%. Therefore the future value of $5000 after 3 years would be FV = $5000 (1+ 6%) ^ 3 FV = 5,955 As the total value after 3 years required would be $10,000. So, after three years amount required for the trip except from the contribution of the parents would be $10,000 - $5,955 = $4045 $4,045 would be the amount that would be needed after 3 years. So, this is the future value of the gift of Aunt Hilda. As this amount would be invested for three years at 10% therefore the present value of this amount would be: PV = 4,045 / (1 + 10%) ^ 3 PV = $3,039 Therefore, $3,039 would be taken from Aunt Hilda as gift. Question #2 Quark industries has four potential projects and the summary and expected cash flows of these projects have been shown below: Project M Project N Project O Project P Year 0 -2,000,000 -2,000,000 -2,000,000 -2,000,000 Year 1 500,000 600,000 1,000,000 300,000 Year 2 500,000 600,000 800,000 300,000 Year 3 500,000 600,000 800,000 300,000 Year 4 500,000 600,000 400,000 300,000 Year 5 500,000 600,000 200,000 300,000 Rate 6% 9% 15% 22% The above table shows the cash flows of each of these projects. In order to determine which project should be accepted, Net Present Value will be used. Net Present value discounts the future cash flows of the project and identifies its work in present (McLaney, 2009). After using the NPV following values have been identified of each of the project: Project M Project N Project O Project P Rate 6% 9% 15% 22% NPV $100,171.60 $306,230.05 $285,765.03 ($935,170.55) Ranking 3 1 2 The above table shows that the project N would be the most feasible one for Quark industries. Ranking has been made that is showing that the Quark industries should invest first in Project N and then in Project O and then in Project M. The company should not invest in Project P as it has a negative NPV. References McLaney, E. (2009). Business Finance: Theory and Practice, New Jersey, Pearson Education Ross, S., Westerfield, R. and Jordan, B. (2009). Fundamentals Of Corporate Finance Standard Edition, New York,
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