Essays on Discount Rate

(a)Discuss the conceptual merit(s) of each of the date-of-issue balance sheet presentations shown above for these bonds. (b)Explain why investors would pay $1,085,800 for bonds that have a maturity value of only $1,000,000. The difference between the present value and the maturity value of the bond depends on the interest rate and the coupon rate. If the coupon rate of a bond is greater than the yield to maturity rate, then it will trade at a premium to its face value. Therefore, it is clear that the bonds of Nicholas company are ...

Investment Proposal for Cengage Learning, Inc.

Executive Summary

Purpose of the Paper The main purpose of the paper is to prepare an effective investment appraisal for Cengage Learning by using various financial management tools.

Overview of the Paper

The paper comprises of following material that can be seen in the overall paper. Investment appraisal techniques for introducing new product line Selection of two most common techniques Importance of techniques through literature Testing of Feasibility of new project Interpretation and conclusion on the analysis Techniques Used Results It is found from the above two analysis that the project is viable for the company and has potential to provide high return ...

Introduction

Capital budgeting assists sports organisation in assessing the viability of their proposed long-term investments (Chandra, 2014). Sports organisations also need to invest in capital projects for expansion as well as to improve the efficiency of their operations. Extreme Sports Company operates a sports training complex with a fitness centre, motorsport cars for hire, among other services. The company has some money to invest in the expansion of either the fitness centre or the motorsport unit. This paper highlights how the company can use capital budgeting techniques to evaluate the two investment options.

Details of the two projects

The motorsport car will cost $200,000 ...

Chapter 1: Introduction 3

Chapter 2: Financial Performance and Position of TESCO 6 Chapter 3 Financial Management Policy 14 Chapter 4 Investment Strategy 18 Chapter 5 Valuation of TESCO 22 Chapter 6 Conclusion 26 Abstract The present report provides critical analysis of financial positioning of Tesco Plc. For this, the financial data has been gathered for past five years as well as its competitors to critically assess financial positioning of Tesco in the retail industry. The reports highlight the recent issues of Bretix which has significantly impacted economic conditions of the United Kingdom leading to declining the consumer confidence because of triggering inflation. ...

Abstract

The Great Depression during the 1930s was referred to as the most severe economic downturn that affected the United States and the global economy. The depression lasted for almost a decade, and some economists and monetary scholars blamed the failure of the banking institutions to come up with effective policies to maintain a sound standing. The banks were not sufficiently prepared to deal with erratic economic movements. Consequently, there were also those who argued that the Fed should be blamed for the economic recession because of their failure to adapt sound monetary policies. It was pointed out that the ...

Chapter 9 questions

Question 1

The discounted cash flow valuation approach determines the value of a firm by discounting the expected cash flows from the firm (Voss & Larrabee, 2012). The value of any firm or asset should be equal to the present value of the cash flows expected from the firm or asset. Since the firm’s value is determined today, the least an investor would be willing to pay is the present value of the sum cash flows expected from the enterprise (Voss & Larrabee, 2012). Discounting is based on the time value if money. A firm will generate a stream of ...

at Rex Hill Winery

Management of Rex Hill Winery has been highly concerned about climate change. They have heard about the Solar Sprint campaign to go solar now before the federal tax credit expires at the end of 2016. They also knew about the other incentives available on installation of solar electrical systems. Considering environmental benefits, they desired to install a PV solar panel system at their property. However, they wished to take a final decision on the project based on a feasibility study. As Rex Hill’s consultant, I have been entrusted the job of preparation of a ...

Abstract

The US economy thrives on the proper functioning of the monetary policy of the government of the day. Interest rates, inflation and recession are all related and happen to influence proper functions of the government warranting their clear understanding. As a victim of a recent economic recession, a consideration of the role of interest rates on the overall functioning of the economy becomes particularly important. This paper shall seek to understand the concept of interest rates and how they affect the economy of the United States of America. The paper, in doing this, shall consider the causes of the ...

Project Analysis

Abstract The report is commissioned to discuss the financial viability of the new project, which Marriot Marquis is considering as part of its sustainability project. In order to appraise the capital project, I have performed the due analysis using capital budgeting techniques under two different scenarios, i.e. with no initial investment and then,an initial investment of $35000. Our calculation revealed that with the initial investment of $35000, the project yields negative NPV. However, if the company initiate the project with zero investment and makes an annual investment of less than or equal to $1660, it can still maintain ...

Article Reviews

The newly developed SASB allowed companies to take into consideration external events (Eccles, 2016) that cannot be controlled such as the effects of climate change. The reason for the accounting standard addition is that governments cannot ignore the effects on industrial markets and their investors (Eccles, 2016). The value of accounting standards is that it allows individuals, companies, and governments to generate wealth since it allows financial performance comparisons (Eccles, 2016). The problem is that there was no previous standard developed for nonfinancial performances (Eccles, 2016) especially on environmental and social activities.

Areas of Agreement

The advantage of the article is that ...

About the report

The report is based on our assistance given to Wheel Industries where we have analyzed the long term investment opportunities available with the company using the techniques of capital budgeting. To facilitate better understanding for our readers, we have included all the calculations within this report while every calculation is explained comprehensively.

Project Details

Wheel Industries is considering a three-year expansion project, Project A. The project requires an initial investment of $1.5 million. The project will use the straight-line depreciation method. The project has no salvage value. It is estimated that the project will generate additional revenues of $1.2 million per ...

Business Decision Making 3 of 3

A Gantt chart is a scheduling technique used to assign a time scale and sequence to a project or plan. A Gantt chart comprises of horizontal bar charts drawn to scale for every project activity. The length of the horizontal bars shows the time to attain completion (Ghionea, 2014). The steps involved in the creation of Gantt charts include the establishment of horizontal axis to represent time, use of vertical axis to represent activities, and representation of each bar using suitable length. The activities represented by the Gantt chart include lot preparation, creating footings, establishing foundations, and framing. Figure ...

Introduction

Sharp Park, which is named after George Sharp, has a long, rich history. Mr. Sharp owned a more than 400-acre estate that he established with a vision for the San Francisco residents to enjoy recreation in a natural setting. When he died together with his wife, the property was left to the San Francisco City Council under strict instructions that it would only be used for recreational purposes. Sharp Park is in California off Highway 1 along the Pacific Ocean, San Francisco. It has existed since 1917; the golf course was established in 1930s. In 1941-internment camp was established ...

Recommendations to the Restaurant Manager

In the current state, the restaurant is profitable. The break-even point is 89,474 covers with a margin of safety of 10,526 covers, and the net profit is £60,000. This implies that the restaurant sales have to fall, by at least 10,526 covers for it to start making losses. The manager has several considerations to make on measures to improve the profitability of the restaurant. The available options and offers are discussed below.

Reducing the price to £10.00

If the price is reduced to £10.00, there will be a rise in sales to 12,000 covers. The contribution margin will fall ...

Investment analysis

In order to choose which option is the best, there is a need to calculate at first Net Present Value and pick the one with the biggest value: Option 1: to add a new window: NPV (1) = 44,0001,15 + 44,0001,15 x 1.15 + 44,0001,15 x 1,15 x 1,15 – 75,000 = 38,260 + 33,270 + 28,930 – 75,000 = 25,460 $.

Option 3: to build a new stand: NPV (3) = 70,0001,15 + 70,0001,15 x 1.15 + 70,0001,15 x 1,15 x 1,15 – 125,000 = 60,869 + 52,930 + 46, ...

1. The capital budgeting system for Target has three different entities. These entities include the real estate managers, the research and planning group, and the capital expenditure committee. The approval process of the capital budget allocation will start with the proposals that are passed on to the real estate managers, which they manage the specific geographical regions. The real estate managers will develop the proposal by gathering and satisfying the different details and all of the requirements in order to prepare it for the pitch to the CEC. The proposal is processed would then be sent to research and ...

INVESTMENT APPRAISSAL

The project would generate total profits of $4,431 The project would generate a positive NPV of $2,569. A key difference between the profits and cash flows is that depreciation is deducted in arriving at profits while it is ignored in calculating cash flows. The incremental working capital is the relevant cash flows associated with working capital. Increases in working capital represent a cash outflows and decreases in the working capital represents a cash inflow. The working capital cash flows are calculated as follows: The internal rate of return (IRR) is the discount rate that would equate the ...

Derivatives

Answer 1) In case, the company use 90-day forward contract, it will be required to pay: =300000*(0.40) = $120000

On the other hand, if it go by money market hedge, initially, it will invest:

=300000/1.03 = 291262 ringits In other words, in order to accumulate 300000 ringits in 90 days, the firm will need to deposit 291262 ringits presently. Henceforth, the firm will need to borrow, 291262* 0.404= $117,670 in the spot market.

The borrowed amount will be paid after 90-days with 4% interest, and this compute to:

= 117,670*(1.04) = $122,377 Therefore, by using the money market hedge, firm will need to pay $2377 more than the forward hedge. Hence, it should go for the forwar hedge

Answer 2)

Steps to hedge in the money market a) Borrow, 4000000/1.08= ...

Evaluation of franchise investment

The franchise investment project is evaluated based on the net present value and the internal rate of returns. The available information is used to determine the NPV and IRR of Schneller Zug and Kyuko Densha. The two measures are used to assess whether each project is viable. NPV and IRR also help in choosing the better project between the two. NPV and IRR are determined using the cost of capital for Javelin Railway Co.

Determination of the cost of capital

The cost of capital is the return investors require from investment to secure funding. It is the minimum return projects must generate to be funded ...

Recession refers to short period associated with decline in economic activities such as decrease in stock market business, high unemployment rates, poor housing facilities, high cost of due to low purchasing power of the country’s currency and general failure in the financial institutions. Recession may vary in terms of magnitude and in terms of how long it may persist (Gaston, 1994). Most economists’ belief on this subject is that recession differs from depression only by the degree of their severity. The implication is that depression is more severe form of recession-though with similar consequences. Usually, recession happens after ...

Phil Mark Consulting

Harris Jackson Dear Sir, RE: Decision regarding the choice of contract between San Francisco 49ers and Dallas Cowboys I am writing this letter regarding the contract decision for Mr. Harris. Based on the cashflows that Mr. Harris will receive from either of the teams, I used the Net Present Value method to determine which contract will serve Mr. Harris’ financial interests. I chose the San Francisco 49ers contract over the Dallas Cowboys one based on the expected cashflows from either of the teams. I forecasted the cashflows at the given current discount rate of 8% which factors in the ...

Abstract

This paper provides a detailed exploration of the methodologies, findings and conclusions of five researchers in the area of entrepreneurship and the various factors that impact on it. The aim of this review is to support the research that on “Motivational Factors of students becoming Entrepreneurs using a push-pull theory of Entrepreneurship.” This review explores issues such as social capital and cultural capital and how they reinforce entrepreneurial development. Further, this review explores risk-taking and the factors surrounding it. The research concludes the risk-taking in entrepreneurship involves not only an examination of the returns, but also the duration during ...

Regression Analysis

Using the regression analysis, we are willing to reveal the real trend behind the growth multiples of the company, i.e. whether the trend in the financial multiples posted by the company is real or just inflated numbers. Stated otherwise, regression analysis is performed to understand how sustainable are the financial numbers and how can these historical trends help us in forecasting the future performance of the company. The first two multiple analyzed were sales per share and EPS as these multiples reveals the amount of money the entity is making. Analyzing the trend, we witnessed that while the sales ...

Net Present Value

The Net Present Value is used in estimating the potential value of every project by applying the discounted cash flow valuation that requires an estimation of the size and time of all cash flows that increases from the project (Ehrhardt & Brigham, 2016). However, NPV is affected greatly by the discounting rate. Therefore, making a selection on the proper rate that is sometimes known as the hurdle rate is essential during decision making. Moreover, this should make a reflection on the riskiness of the investment because it is typically measured by the unpredictability of cash flows. Therefore, it must take ...

Darden Restaurants, Inc. is an American restaurant consisting of various brands whose headquarter is located in Orlando. The company operates several brands in the United States including Olive Garden, Bahama Breeze, LongHorn Steakhouse, Season 52, Wildfish Seafood Grille, The Capital Grill, Eddie V’s Prime Seafood, and Yard House. The company used to own Red Lobster up until the year 2014 where the business changed hands. Darden had 1534 create and restaurants locations owned and operated by the company and spread in both the United States and Canada. All the restaurants were owned and managed by the firm with ...

Air threads measure of value can be evaluated by the following methods; discounted cash flow this refers to the existing estimate of Air Thread Company using its future opportunities of investment. Comparable transactions method can also apply in the likelihood of occurrence of an akin transaction that may have occurred in a condition that is similar to an existing one. Multiple methods may also be incorporated to ascertain the value of Air thread in comparison to another firm that may be comparable to it, for example, the American cable communications company itself. The market valuation also applies which refers ...

Question 1: Olter’s Beta coefficient

Olter’s Beta can be determined using the Capital Asset Pricing Model. The required return on the average stock is the market return while the average return on Olter’s stock is Olter’s required rate of return. Beta = (Expected return – Risk-free rate)/ (Market return – Risk free rate) = (13-6)(13-6) = 1.0

Question 2: Effect of Beta coefficient on stock price

Beta is a measure of risk and gives the variability of a stock’s return (price changes) in relation to the variability of the overall market. Since it represents the stock’s risk, Beta influences the prices of stocks. Under the Capital Asset Pricing Model, Beta is ...

This report analyses the most recent financial reports of two companies; Sino Gas and Energy of Australia (2014), and Solar World of Germany (2015). Sino Gas and Energy reported total provisions of $97,166 that constituted 0.09% of the total assets. Solar World reported total provisions of k€ 49,466 that constituted 5.69% of the total assets. The provisions for the two companies are listed below in descending order based on their book values:

Sino Gas and Energy $

Other provisions 60,837 Employee entitlements 36,329 Total 97,166 Solar world k€ Warranties 24,653 Pensions 10,704 Litigation risks 9,190 Other ...

Part A:

Importance of Capital Investment Decision The university has now reached a stage where it cannot procrastinate the decision to build a new building and replace the existing one, which has now turned expensive to run and is also imposing a poor environmental performance. Therefore, it has now turned crucial for the university to replace the old building with the new one not only because the existing facility impedes the profitability position of the organization, but is also harming the environment and is thus sending a negative signal amongst the community. Henceforth, the university should proceed with the appraisal of ...

A bond can be defined as a contractual promise to repay a principal sum of money together with the interest, also known as coupons, at given maturity dates. Bonds are debt instruments that are issued for a period usually more than a year with the intention of raising capital. When investors purchase bonds, they became creditors of the issuer. The fair value of a bond is determined by the present value of cash flows that are to be generated from the bond in future at a given discount rate. Hence, the price of a bond is calculated using the present value formula at a specified discount rate. ...