Corporate Finance

MODULE 3
Hi all,
I believe you have been accurate in accepting the project based on the evaluation resulting from the positive net present value obtained.
As stated by Peirson et al (2012), the net present values of a project is found by discounting the project’s future net cash flow at the required rate of return and deducting from the resulting present value the initial cash outlay on theproject.
Hence it should be:
NPV = Σ___C1___ - C0
(1+K)1
Where:
C0 or investment = 2,500
Years = 5
C1 Net Flow = (4,500 – 2.000) = 2,500
K = 11% or 0,11

Hence:

NPV = (2,500/(1+0,11)1) + (2,500/(1+0,11)2) + (2,500/(1+0,11)3) + (2,500/(1+0,11)4) (2,500/(1+0,11)5) – 2,500
NPV = 2252,25 + 2029,05 + 1828,01 + 1646,90 + 1483,67 - 2500
NPV = 9243,88 – 2500 = 6743,88As we have a positive value the project is advisable to be accepted

Regards

Andres Rivera

Module 4
My answer:
In my answer I assumed the 40.000 of invested capital were to be claimed over the life of the project of 10 years assuming 4000 each year
ABC Ltd Project Investment
Planned investment: 400.000
Depreciation (straight line method): 400.000 / 10 years: 40.000 per year
Netprofit = Sales – operating expenses: 240.000 – 110.000 = 130.000
Net profit after tax: 130.000 x 30% = 39.000 then 130-000 – 39.000 = 91.000
Depreciation to be claimed over 10 years: 40.000 per year x 30% = 12.000
Net profit after tax + depreciation (tax claimed) = 91.000 + 12.000 = 103.000
Working Capital: 40.000 over 10 years = Assumed 4.000 per year
Tax claimed on working capital: 4.000 x30% = 1.200
Final Net Profit After Tax: 103.000 + 1.200 = 104.200
Machine Salvage Value / Gain on sale (terminal cash flow): 50.000 – 30% tax = 35.000

Net Present Value
NPV = Σ___C1___ - C0
(1+K)1
Where:
C0 or investment = 440.000
Years = 10
C1 Net Flow = 104.200 (First 9 years ) year 10 (104.200 + (50.000-30%))= 139.200
K = 10% or 0,10

Therefore
NPV =(104.200/(1+0,10)1) + (104.200/(1+0,10)2) + (104.200/(1+0,10)3) + (104.200/(1+0,10)4) (104.200/(1+0,10)5) (104.200/(1+0,10)6) + (104.200/(1+0,10)7) + (104.200/(1+0,10)8) + (104.200/(1+0,10)9) (139.200/(1+0,10)10) – 440.000

NPV = 94.727,27 + 86.115,70 + 78.345,86 + 71.369,86 + 64.720,49 + 58.870,05 + 53.711,34 + 48.920,18 + 44.529,91 + 54.163,42 – 440.000

NPV = 655.474,08 – 440.000 =215.474,08

The project has a positive balance hence it should be accepted.

During the 2007 global economic crisis, Australian companies sought a new strategy in how capital was raised for funding. When the crisis start on 2007 the ability for companies to raise funds from internal profitable operations declined, Australian companies exercise caution when raising capital from external debtfunding including bank borrowings and raising equity. The result from the crisis was an interest increase from capital borrowed and the tightening from banks to lend capital. However, during the 2 year period crisis, the ability for Australian companies to raise capital to pay their debt was critical to maintain access to those external fund raising alternatives and the debt growth at a steady rate.Australia key success was to maintain a steady calm at the beginning of the crisis and despite the effects on many industrialized countries including the US , Europe and some Asian markets, Australia managed to maintain a stable economy inclusive managed to consolidate and strong it. The result of a stronger dollar and solid economy during the 2 year crisis and inclusive now was to increase theability of Australian companies to raise funds from internal operations such as cash profits and share capital in stock issues and dividends.
Regards
Andres Rivera

Bonds or debentures are debt securities or debt investments that promises to pay a fixed interest rate to investors for lending a given sum to a company, government to be invested in projects that generate a return of investment...