return. The 60% bond option had earnings per common stock share at .160. The $43‚200 interest on bonds could have affected the earnings total. The income before tax and the tax income was a contributing factor to lower figures and results in the net income category. A2. Competition Bikes needs to analyze their capital budgeting. Businesses should acquire investments that are going to bring in more revenue but they have to make sure for the long term the investment
Premium Investment Net present value Corporate finance
KK INDUSTRIES FEASIBILITY STUDY A STUDY TO ASSESS THE FINANCIAL FEASIBILITY OF SETTING UP A PLASTIC FOOD CONTAINER PLANT BY KK INDUSTRIES‚ BANGALORE SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF BACHELOR OF BUSINESS MANAGEMENT DEGREE COURSE OF BANGALORE UNIVERSITY By M R KAUSHIK Reg. No. 08KXC08077 Under The Guidance of Mrs. Mini K Abraham HOD – COMMERCE SURANA COLLEGE OF ARTS‚ SCIENCE‚ COMMERCE AND MANAGEMENT South End Road Bangalore – 560004 2010 – 11 SURANA COLLEGE 1
Premium Net present value
8 : 1 to 23 Chapter 9 : 1 to 24 1. NET PRESENT VALUE A. The Basic Idea Net present value—the difference between the market value of an investment and its cost. While estimating cost is usually straightforward‚ finding the market value of assets can be tricky. The principle is to find the market price of comparables or substitutes. Perspectives: Using the text example (page 257)‚ the basic idea behind capital budgeting is to ‘add value’. After including all of the costs (cash
Premium Net present value Costs Variable cost
Capital Budgeting Introduction Capital budgeting decisions are the most important investment decisions made by management. The objective of these decisions is to select investments in real assets that will increase the value of the firm. (Kidwell and Parrino‚ 2009) Project Classification Types * Replacement projects are expenditures necessary to replace worn-out or damaged equipment. * Cost reduction projects include expenditures to replace serviceable but obsolete plant and equipment
Premium Net present value
Financial Analysis JET2 Task 3 A1. Capital Structure Recommendation A sound capital structure needs to be in place for Competition Bikes to maximize its shareholder return and expand. A good capital structure would ensure adequate funding and future business stability. However‚ adequate funding involves capital financing which also has its own risks. If bonds are issued‚ the company would have to pay interest on them but if sales projections aren’t met‚ this could have a huge negative impact
Premium Net present value Internal rate of return Investment
being able to earn an income greater than the funds committed”. (Investment Appraisal sheet). A Capital Budgeting Process essentially defined as‚ “the process by which the financial manager decides whether to invest in specific capital projects or assets” (Capital Budgeting‚ Decision Process‚ Procedure‚ definition) is put in place within companies in order to sift through and make decisions regarding viable major investments. The various stages of the Capital Budgeting Process are (a) Forecasting
Premium Capital budgeting Investment Net present value
Page 2 of 14 KAPLAN PUBLISHING Revision Mock Questions FORMULAE SHEET Modigliani and Miller proposition 2 (with tax) ke = kie + (1 − T)(kie − kd) Vd Ve Two asset portfolio sp = 2 2 w a s a + w 2 s 2 + 2w a w b rab s a s b b b The capital asset pricing model E(ri) = Rf + βi(E(rm) − Rf) The asset beta formula ⎡ ⎤ ⎡ Vd (1 − T ) ⎤ Ve βa = ⎢ βe ⎥ + ⎢ βd ⎥ ⎣ (Ve + Vd (1 − T )) ⎦ ⎣ Ve + Vd (1 − T )) ⎦ The growth
Premium Futures contract Net present value Dividend
GOVERNANCE Objective of corp finance: maximize firm value. Narrower objective of maximizing stockholder wealth; when stock is traded and markets are viewed to be efficient‚ objective is to maximize stock price. A. Stockholder interests vs management interests In theory: stockholders have significant control over management. Mechanisms for discipline: Annual meeting and BOD In Practice: Most stockholders do not go to meetings since cost of going exceeds the value of their holdings; incumbernt mgmt starts off
Premium Finance Corporate finance Generally Accepted Accounting Principles
domestic currency assets. E: none of the above. 4. If the net foreign return is lower than the domestic interest rate then: A: the interest parity forward rate is lower than the actual forward rate. B*: the interest parity forward rate is higher than the actual forward rate. C: the interest rate differential is lower than the forward spread. D: the forward discount is higher than the interest differential in favor of the home currency assets. E: none of
Premium Investment Net present value Time value of money
requires a 10% internal rate of return on these assets. Ques 1. What is the amount of annual cash flows that Polaris must earn from these projects to have a 10% internal rate of return? Solution 1:Initial Investment=$2.12 million=$212000 Time Period (n) =10 years At IRR‚=10%‚Net Present Value of Investment=0 i.e. Present Value of 10 years Cash Flow-Initial Investment=0 Initial Investment =Present Value of 10 year Cash Flow We will get Present value of 10 year equal cash flow(CF) using annuity formula
Premium Cash flow Net present value Internal rate of return