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IB Finance and Investment - Assignment Example

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This assignment "IB Finance and Investment" focuses on systematic risks and unsystematic risks, calculation of the return on equity using the risk premium approach, determination of risk adjusted discount and developing risk premium for various risk classes…
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IB Finance and Investment
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Download file to see previous pages These are significant factors and need to be considered while drafting a green paper on capital budgeting.
According to the writer, it makes a significant difference that the entire stock is held in toto by Blair’s family; since it implies that there are no outside shareholdings that could interfere with corporate decision making and execution of capital projects. There are no outside stakeholders who need to be convinced about the viability of investments or its financial implications on the company. However, the risks and responsibilities for investment decisions are to be taken by the Blairs and they are answerable for these options.
It has been said that the Blairs do not have a well-diversified portfolio of investments and all their wealth has been parked in Success Inc. Hence the success of this Company is vital not only for the company itself but also for its owners and total stakeholders. However, if major projects are to be undertaken in the future it would become necessary to broaden the capital base by public equities or debt capital, for long term sustenance in the fiercely competitive market. In business, the more judicious and market-oriented risks that a company takes, the more return accrues to them, since the risk is tantamount to returns. However, having adopted a conservative approach, it needs to be seen that the Blairs undertake recycling of internal funds by increasing their retained earnings of
4. The most important step in developing a risk premium for various risk classes lies in the fact that we have to consider the present value of future risks and its quantification. Besides, a lot of economic factors would impinge on the different risk classes that need to be quantified. Since the risk premium is the additional amount the investors would demand investing, it goes naturally that the important aspect is the risk assessment and evaluation. ...Download file to see next pagesRead More
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