We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Corporate Finance Assignment - Essay Example

Comments (0) Cite this document
1. Estimate the NPV of the project Net Present Value Net Cash Flow Net Cash Flow Net Cash Flow Particulars Initial Outlay Year 1 Year 2 Year 3 ? Initial Capital Expenditure (12,000,000) Sales 8,000,000 12,000,000 16,000,000 Variable Costs (2,400,000) (3,600,000) (4,800,000) Fixed Costs (2,000,000) (2,000,000) (2,000,000) Depreciation (4,000,000) (4,000,000) (4,000,000) Taxable Profit (12,000,000) (400,000) 2,400,000 5,200,000 Tax @ 30% 3,600,000 120,000 (720,000) (1,560,000) Amount after tax (8,400,000) (280,000) 1,680,000 3,640,000 Add back Depreciation (Non cash item) 4,000,000 4,000,000 4,000,000 Net Cash Flow (8,400,000) 3,720,000 5,680,000 7,640,000 Discounting Factor @ 8% 1 0.93 0.86 0…
Download full paperFile format: .doc, available for editing
Polish This Essay92.4% of users find it useful
Corporate Finance Assignment
Read TextPreview

Extract of sample
"Corporate Finance Assignment"

Download file to see previous pages Sales increase from year 1 to year 2 by 1.5 times, but in the 3rd year it appears that the sales only increase by 1.33 times, which shows a decline as compared to the previous financial year. Variable cost is included as a percentage of the sales for the month, which is 30% of the sales for the year. All the fixed costs are assumed to be directly attributable to the project and thus are included in the cash flows. As mentioned in the project, the useful life of the facility will be three years, thus it will be depreciated on a straight line basis over three years. Depreciation is a non-cash item, but it is included in the cash flow forecasting because of the tax shield, since depreciation is also tax deductible. In first year, the company will have taxable loss, so it is assumed that the company will have taxable profit in the future, against which this taxable loss will be utilized, resulting in tax savings. Depreciation is added back and the net cash flow is discounted through the use of the required rate of return in order to calculate the Net Present Value. 2. The principal risk of the project There are several principal risks that surround the project. Hi-Tech Industries operates in the technology industry, which is subject to rapid changes in many fields such as standard equipment, operating procedures, and laws and regulation. The project under consideration requires a careful estimation of all the relevant costs and revenues; a misjudgment in the forecast will cause an error in the project net present value, which might result in the acceptance of a project which is not financially viable. The initial capital expenditure must be carefully projected. In order to do so, it is of prime importance that the company obtains quotations from several companies in order to project the current market value of component. An artificially higher price will put a declining effect on the net present value of the project, and an artificially lower price will cause the opposite. Another risk that is present in the financial appraisal of the project is that the company might not have estimated the correct useful life of the equipment. The IT related hardware and equipment are subject to becoming obsolete at a greater pace as compared to the other kinds, so this risk is present. While making an investment appraisal decision, it is imperative to consider the impact of inflation in the future cash flow. The information provided does not include any relevant information about the price inflation over the three year period, which can significantly impact the expected NPV. The director of the company must also consider the sources from which the financing will be obtained for the investment. Financing decision is significant, as the company would have to pay finance charge to the bank or any other financial institution, and the company must have enough cash flow in the future for the payment of these finance charge. In order to commence any investment venture, the director must receive the approval of the shareholders. ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
(“Corporate Finance Assignment Essay Example | Topics and Well Written Essays - 1750 words”, n.d.)
Corporate Finance Assignment Essay Example | Topics and Well Written Essays - 1750 words. Retrieved from https://studentshare.org/finance-accounting/1453998-corporate-finance-assignment
(Corporate Finance Assignment Essay Example | Topics and Well Written Essays - 1750 Words)
Corporate Finance Assignment Essay Example | Topics and Well Written Essays - 1750 Words. https://studentshare.org/finance-accounting/1453998-corporate-finance-assignment.
“Corporate Finance Assignment Essay Example | Topics and Well Written Essays - 1750 Words”, n.d. https://studentshare.org/finance-accounting/1453998-corporate-finance-assignment.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
Corporate Finance Assignment ( Questions )
Do you think agency problems are likely to be more or less severe in Germany and Japan than in United States?? Agency problem is less severe in Germany and Japan and the reason for the same is the insider ownership transaction that takes place in US corporations.
6 Pages(1500 words)Essay
Corporate Finance assignment on capital budgeting techniques and required rate of return estimation
Projects with bigger IRR are taken to be more profitable. This is not always the case, though. NPV on the other hand is the total amount of incomes present value. All the amounts to be received or expended in future are discounted. It simply shows the opportunity cost of not carrying out the project.
12 Pages(3000 words)Essay
Strategic Corporate Finance Mod 5 Case Assignment
A company can borrow from a bank or offer stocks and bonds in the open market. It can spend or invest the cash in current or future projects that will increase the worth of the firm and maximize the wealth of its owners. The process of deciding which projects to invest in and which not to is called Capital Budgeting (Brigham & Ehrhardt, 2010).
5 Pages(1250 words)Essay
Strategic Corporate Finance ASSIGNMENT 2
This estimate of asset valuation is the most conservative as it solely depends upon the book values of the assets. It is assumed that in the event of bankruptcy, the company is likely to receive at least this value of assets (Jaffe and Ross, 2004). If the above values are taken into consideration, it can be noted that M&S has performed well especially in terms of generating higher NAV per share.
10 Pages(2500 words)Essay
Assignment on Corporate Finance
In economics, merger is a combination of two companies into one larger company such actions are commonly voluntary and involved stock swap or cash payment to the target stock swap is often used as it allows the shareholders of the two companies to share the risk involved in the deal.
14 Pages(3500 words)Essay
The average interest rate of GSK is 5.0% in the year 2008. Due to the sound business operation strategies that the management has adopted, a reflection on the net profit of the
8 Pages(2000 words)Essay
Corporate Finance Assignment
s based on the study of stock markets with the reinforcement of accounting on a large scale with studies of data and creating a base for methodology of conduct of interviews or methods with intensive data for ahead of merger as well as after merger performances to study
6 Pages(1500 words)Essay
Corporate Management & Finance - Assignment 3
This has been experienced in housing offices, civic buildings, universities, colleges, roads, public realm, hospitals and rail constructions (Osborne, 2013). Similarly, Kier Group has been involved in facilities maintenance, environmental consultancy, maintenance of
5 Pages(1250 words)Essay
Advanced Corporate Finance Assignment
The two sides of leadership then met on 5th January, 2014, in New York, for what was termed as ‘high level talks. The first proposal by Pfizer hit £58bn or £4661 per share, a price that was declined by AstraZeneca. On 26th April, 2014, Read requests to meet
2 Pages(500 words)Essay
3BM070 Strategic Corporate Finance ASSIGNMENT 2
The price earnings ratio of the oil and gas industry is seen to be 12.8 % approximately. In the year 2013, the p/e ratio is seen to be much lower than the general industry standard. However, for BP, the price earnings ratio for
8 Pages(2000 words)Essay
Let us find you another Essay on topic Corporate Finance Assignment for FREE!
Contact us:
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us