# Fundamentals of Finance - Essay Example

Summary
This essay will cover the analyses of the various cost alternatives, as well as additional assumptions that might have to be introduced in order to make this a more real-world example.This case illustrates the relative costs of capital, but it does so in a bit of a vacuum…

## Extract of sample "Fundamentals of Finance"

Download file to see previous pages The company’s current drill and platform was purchased 3 years ago for £10M. The firm depreciates the machine using MACRS over a 5 year recovery period when the assets are replaced due to very high maintenance costs. The company’s management estimates that after removal costs are taken into consideration, this platform can be sold for £3.5M. The company can also buy a new high specification platform at a cost of £14M plus installation costs of £1M and still has an estimated life of 5 years. If they decide to go ahead with this purchase then the company’s working capital needs will change; accounts receivable will increase to £1.5M, accounts payable will also increase to £1M and inventory will increase to £2M.
Swindon is expected to be able to sell the new, proposed machine at the end of the 5-year period for £4M while the present machine at the end of the same period is expected to generate £2.5M. All else equal, the company expects to recover their Net Working Capital Investment at the end of the same period. The company’s tax rate is at 40%. The existing machine is expected to net £3,500,000 each year for the next 5 years. Along with the C.F.O, the Operations Officer has also laid down the estimated cash flows of the company from the new drilling platform as follows: 1) DEBT: the company can raise an unlimited amount of debt by selling £1,000 par value, 6.5% coupon interest rate, 10 year bonds on which annual interest payments will be made. To sell the issue, an average discount of £20 per bond needs to be given. There also is an associated flotation cost of 2% of par value. 2) PREFERRED STOCK: the company can raise an unlimited amount of preferred stock under the following terms; (a) the security has a par value of £100/share, (b) the annual dividend rate is 6% of the par value, (c) the flotation cost is expected to be £4 per share. The preferred stock is expected to sell for £102 before cost considerations. ...Download file to see next pagesRead More
Cite this document
• APA
• MLA
• CHICAGO
(“Fundamentals of Finance Essay Example | Topics and Well Written Essays - 2750 words”, n.d.)
(Fundamentals of Finance Essay Example | Topics and Well Written Essays - 2750 Words)
“Fundamentals of Finance Essay Example | Topics and Well Written Essays - 2750 Words”, n.d. https://studentshare.org/finance-accounting/1543286-calculations-in-finance-only-please-see-to-the-questions-and-description-on-the-the-instructions-box.
Click to create a comment or rate a document

## CHECK THESE SAMPLES OF Fundamentals of Finance

### Fundamentals of Finance

...? of Paper Schools Number and of (e.g., October 12, 2009) Fundamentals ofFinance Executive Summary HSBC is the second largest banking and financial group in the world and it has been operating in 87 countries. This report analyses the financial statements of HSBC for the last five years. Financial ratios have been calculated in order to analyze the financial performance of this multinational bank. This report analyses the London Stock Exchange market and the stock price movement of HSBC and one of the competitors of HSBC, Barclays Bank. The returns of HSBC are compared against the London Stock Exchange and against Barclays Bank. This report includes the analysis of stock price movement of HSBC, Barclays Bank and London...
8 Pages(2000 words)Coursework

### Fundamentals of finance

...…………………………………………………………………………..xxxxx ……………………………………………………………………….xxxx …………………………………………………………………………..xxxx ………………………………………………………………………xxxx @2012 Fundamentals of finance 1. Company summary IITV plc is a media company based in the United Kingdom and cover new, broadcasting and production. The company owns all of the three regional channel licenses in Wales and England. ITV owns ITV1 and ITV2 and has partial interest in GMTV. ITV began its broadcasting in 1955 following the Television Act of 1954 which made commercial television possible in the United Kingdom. ITV broadcasting operates a group of channels which include ITV1 and also delivers content across a number of platforms like ITV player and itv.com. Its...
8 Pages(2000 words)Essay

### Fundamentals of finance

...? FUNDAMENTALS OF FINANCE INVESTMENT REPORT ON ITV AND WPP School COMPANY SUMMARY ITV PLC ITV Plc, listed in London Stock Exchange (LSE) is one of the largest and oldest TV network operating in the United Kingdom (ITV PLC). It started broadcasting as ITV immediately after the 1954 Television Act was enacted to allow commercial television. Its first area of operation was London under channel 3 broadcasting licence. ITV Plc came into being in 2004 after a merger between Granada, which had six regional licences and Carlton, which controlled five licences. This led to ITV Plc to control eleven licences in total. Among other channels that ITV Plc owns include ITV2 that was formed in 1998, ITV3 that was formed...
8 Pages(2000 words)Essay

### Fundamentals of Finance

...Fundamentals of Finance Option Buy to Let Location: Manchester Road, Clifton of Property: It is a 2-bedroomed flat positioned along the Manchester Road, Clifton, situated on the ground floor with a kitchen and lounge, has no chain, collective garden, gas central heating, and double glazing, and family bathroom. The property is a situated in a secure place with drive in checks and within an area dominated by high presence of local authorities and sheriff office. The environment is friendly as the open communal garden is open to the horizon as the property is not surrounded by tall buildings or obstructions from direct view of the sky. Photos: Interior view of one of the master bedrooms showing a spacious...
7 Pages(1750 words)Essay

### Fundamentals of Finance

...Fundamentals of Finance Swindon Plc Swindon Plc is a company, which is mainly dealing with the oil related products. Therefore, for taking the appropriate finance decision it is necessary to undertake several calculations, for taking the adequate finance decisions. A) Calculate the specific cost of each form of financing One of the most important considerations for an entrepreneur or an organization, while implementing a new project or undertaking expansion, diversification, modernization is ascertaining the cost of project and the means of finance. Financial sources as well as financial needs are short term, medium term, and long term....
10 Pages(2500 words)Case Study

### Fundamentals of Finance

...Fundamentals of Finance A. Calculation of specific cost of each form of financing: In this particular case, it is necessary to evaluate the fundamentals of finance handled by Swindon Plc.It is necessary to consider the significant decisions being taken by Swindon plc, and the method of depreciation applied by Swindon is MACRS (Modified Accelerated Cost Recovery System). Under this method of depreciation, it is necessary to consider the asset class lives which should be less than the actual life of the asset, so that the salvage value of such assets should be zero. If a particular property is utilizing for a period of five years or more then the...
4 Pages(1000 words)Essay

### FUNDAMENTALS OF FINANCE

...of money invested. It comes handy in the evaluation of the value addition generated by some investment ex post. For instance, value addition by activities like mergers may be analysed through the change in the earnings per share after the merger. These two measures combined are used by analysts to calculate the present value of growth opportunities (PVGO). This can be done due to the common practice of the stock price (P0) being conceptualised as the capitalised value of average earnings under a no growth policy plus PVGO. i.e, P0 = EPS/r + PVGO => PVGO = P0 - EPS/r Also, we can have the price earnings ratio as P0/ EPS = r(1- PVGO/P0) So, we see that these two concepts can be used in tandem for to obtain the PVGO which can then be...
8 Pages(2000 words)Essay

### Fundamentals of Finance

...Fundamentals of Finance Executive Summary Marks and Spencer is a respected in the international retail industry. This project attempts to analyse the fundamental financial position of the company. To meet its objective, the performance of the company for the last five years has to be studied to understand its trend. Once the comparative study is initiated, the financial ratios will be analysed to arrive at a holistic conclusion. To determine M&S’s position in the global retail industry, these ratios were compared with the industry average. The analysis revealed that despite the drop in sales during recession, it still managed to revive its financial state. Therefore, it can be said that...
8 Pages(2000 words)Essay

### FUNDAMENTALS OF FINANCE ASSIGNMENT

...return then that asset can be purchased. Expected Return= Risk in Finance The possibility that Investor will lose money when they invest in a company that has debt, if the companys cash flow proves inadequate to meet its financial obligations.In other words risk of getting loss instead of profit is financial risk. Relationship The rate of return depends upon the risk associated with that investment. The greater the risk, the larger the return that is they are directly proportional to each other. This is one of the most fundamental relations in finance. The rate of return is what you earn on an investment, stated in percentage terms.If we analyze portfolio Kappa and Omega we can see that...
9 Pages(2250 words)Essay

### FUNDAMENTALS OF FINANCE

...in question 4, the balanced fund has an average rate of return and an average rate of risk, which matched perfectly with our group financial objectives (Lachance, 2003; Milevsky, 2001; Olsen, 2008). References Bartram, S. M. and Gordon M. B., 2009. No place to hide: The global crisis in equity markets in 2008/09. Journal of International Money and Finance (forthcoming). Dwyer, G.P., and Paula, T., 2009. The financial crisis of 2008 in fixed-income markets. Journal of International Money and Finance (forthcoming). Kapur, .S. and Orszag, M., 1999. A portfolio approach to investment and annuitization during retirement. Birkbeck College press: London. Lachance, M., 2003. Optimal investment behavior as...
4 Pages(1000 words)Assignment