StudentShare solutions
Triangle menu

Financial - Term Paper Example

Nobody downloaded yet

Extract of sample

900,000 ?1,600,000 ?1,850,000 ?1,100,000 ?2,225,000 Discount Factor @ 12% Cost of Capital 1.00 0.893 0.797 0.712 0.636 0.567 Present Value (?5,150,000) ?803,700 ?1,275,200 ?1,317,200 ?699,600 ?1,261,575 NPV ?207,275 NPV:-?5,150,000 + ?803,700 + ?1,275,200 + ?1,317,200 + ?699,600 + ?1,261,575 = ?207,275 The Net Present Value of a company is the value of a future number in terms of today. It basically helps in finding out a project’s is profitability. It requires finding out the present value of each future cash flow discounted at a specific value, which is the cost of capital of the project given in the form of a percentage. It uses the concept of discounted cash flows. Time Cash Flow (?5,150,000) ?900,000 ?1,600,000 ?1,850,000 ?1,100,000 ?2,225,000 Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Cash Flow (?5,150,000) ?900,000 ?1,600,000 ?1,850,000 ?1,100,000 ?2,225,000 Discount Factor @ 14% Cost of Capital 1.00 0.877 0.769 0.675 0.592 0.519 Present Value (?5,150,000) ?789,300 ?1,230,400 ?1,248,750 ?651,200 ?1,154,775 NPV (?75,575) NPV = -?5,150,000 + ?789,300 + ?1,230,400 + ?1,248,750 + ?651,200 + ?1,154,775 NPV = (?75,575) Payback Payback = 4,250,000 – 900,000 (Yr 1) – 1,600,000 (Yr 2) = 1750000 ? 1,850,000 (Yr 3) * 12 Payback = 2 Years and 11 months This is a technique used to measure the feasibility of projects in terms of the number of years that it takes to pay back an initial investment. It is measured in number of years till full recovery and the following formula can be used to measure it. Payback = No. of years prior to full recovery + Unrecovered cost at beginning of year/Cash flow during full recovery year. Payback basically represents the period of time during which the initial investment gets recovered. IRR: To calculate IRR, a negative NPV would be calculated. Hence a discount factor of 14% is selected. IRR = LDR + [PV1/PV1-PV2]* (HDR-LDR) LDR = Lower Discount Rate HDR = Higher Discount Rate Pv1 = Present Value at Lower Rate of Return Pv2= Present Value at Higher Rate of Return IRR = 12% + [207,275/ 207,275 – (-75,575) * (14% - 12%)] IRR = 13.46% IRR is the value where the NPV is equal to zero. It is the optimal value where a project is most beneficial. IRR can gauge the profitability of a proposed investment by taking into consideration the concept of discounted cash flows. IRR is not very easy to be calculated as any other accounting measure such as NPV and if done then it does not give accurate answers. It is done on a trial and error. b) Provide a rationale for your treatment of initial research, depreciation and working capital, supporting your answer with links to theory briefly indicate other considerations which might also affect the decision Initial research would not be included within the Net Present Value (NPV) calculation. This is because the initial research cost had already been incurred before starting the project hence the cost was deemed to be a sunk cost. Sunk costs are not to be included within the NPV calculation because these costs have already been incurred and that do not affect the decision of either commencing or aborting any business plan. Depreciation costs do not get included within the calculation of NPV. This is because depreciation is a non-cash item and the NPV purely constitutes cash related items with respect to the time value of money. Although depreciation expense is only included within the NPV calculation in order to ascertain the Tax savings. The tax savings on allowances allowed by the tax authorities are only included ...Show more


Financial Management Name University Course Investment Appraisal Time 0 1 2 3 4 5 Sales ? 8,000,000 ?8,800,000 ?9,600,000 ?7,200,000 ?6,000,000 Variable costs ( ? 5,500,000) (?6,050,000) (?6,600,000) (?4,950,000) (?4,400,000) Contribution ?…
Author : volkmankimberly
Financial essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the term paper on your topic
with a personal 20% discount.
Grab the best paper

Check these samples - they also fit your topic

Financial Planning
Here the various expenses in the income statement and the assets & liabilities in the balance sheet are taken as a percentage of sales. These figures are forecasted to be as a percentage of sales in the recent financial statement. Alternatively these items can be computed as an average over the last few years or may depend on the discretion of the analyst.
5 pages (1250 words) Term Paper
Financial Management
Introduction – Meaning and Importance of Ratio Analysis A ratio is a mathematical relationship between two related terms expressed in a quantitative form. When a ratio is calculated between two accounting figures from the financial statements of a business enterprise, i.e.
5 pages (1250 words) Term Paper
Financial statements in corporations
The financial statements are prepared at the conclusion of the accounting cycle. The normal accounting cycle is for a period of one year. Publicly traded corporations are mandated by the Securities and Exchange Commission (SEC) to release an annual report each year which among other things it must contain the financial statements of the firm.
2 pages (500 words) Term Paper
Global Financial Stability
This ensures that financial resources are allocated effectively towards enhancing economic growth and development. According to Choi (2009), a good financial system initiates a financially stable economy. Financial steadiness is a state whereby the financial intermediation processes works smoothly and there is assurance in the operation of the major institutions of finance and markets within the economy.
4 pages (1000 words) Term Paper
Financial crisis
Introduction 3 2) Types of Financial Crisis 3 3) Causes of Financial Crisis 7 4) Prevent Financial Crisis 9 4) Conclusions 10 References 11 1. Introduction Financial crisis is a term used to identify events and situations where an entity such as a bank, financial institutions, and the stock market will suddenly see a devaluation of their assets.
8 pages (2000 words) Term Paper
Financial Management
This merger led to the creation of the largest brewing company with $36billion in sales.The merger has over 11600 employees in over 30 counties. The merger deal was completed in November 2008 (Anheuser-Busch InBev, 2008). Description of firms and industries: Anheuser-Busch: It’s a leading company that was established in 1860 in Missouri St Loius.
8 pages (2000 words) Term Paper
Financial management
countries (the United Kingdom, the United States, Canada, Germany, Japan, France and Italy) began in right earnest from this time and it resulted in sharp growth of the overall size of financial superstructure. This rapid growth can be gauged from the simple fact that the total
9 pages (2250 words) Term Paper
Financial Management
When a ratio is calculated between two accounting figures from the financial statements of a business enterprise, i.e. income statement (Profit & Loss Account), statement of financial position (Balance Sheet) and a statement of changes
5 pages (1250 words) Term Paper
Its profit is still higher than Option 2 while Option 1 has the highest projected profit. Option 2 has an estimated 16.15% drop in profits and is the
3 pages (750 words) Essay
Financial Management
The merger deal was completed in November 2008 (Anheuser-Busch InBev, 2008). It’s a leading company that was established in 1860 in Missouri St Loius. It is
8 pages (2000 words) Term Paper
Hire a pro to write
a paper under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
Comments (0)
Click to create a comment