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Finance

Analysis of Adani Power Operation of a Wood Biomass Energy Production

Adani Power has recently become interested in renewable energy projects (Panchabuta, 2012). In this situation, the capital investment costs will likely include pre-project study research and analysis, equipment, equipment installation and construction, employee benefits, labor, and land as fixed costs. The operation costs will include a marketing team, administrative and management staff, office space and utilities, the cost of personnel to run the equipment, equipment maintenance, insurance, accounting and legal fees, taxes, supplies and office expenses, and depreciation. This scenario assumes that a ₹ 1,000,000 loan was taken out at the beginning of year 1 with an interest rate of 7.5%.

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Finance

Analysis and Discussion of Financial and Accounting Processes

Abstract

This discussion and presentation is based on the analysis of the different conditions by which a business is able to smoothly operate based on the accounting and financial management operations it embraces to adapt to. Presented in a form of memo, this documentation is supposed to be presented to the board of members of the XYZ Construction Inc in the absence of the Chief Financial Officer to give them an idea on how the financial assets of the organization is being managed through accounting principles.

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Finance

Managerial Finances Homework Problem

Page 161.

  1. The appropriate coupon bond rate is based on an assessment of market risk.
  2. Yes; the investor might be concerned with the nominal return if the nominal return is
  3. Although bond issuers are not obligated (regulated) to have their bonds rated, they do as a means to signal value to the investor. That is, they want to have a “stamp of approval” regarding the quality of the bond offering for investors.

 

Pages 162-165

 

  • What is the price of a 15 year zero coupon bond priced at

A 15 year zero coupon bond is a bond that receives no coupon bond at the end and is thus priced below par

  1. Bond price= M/(1+i)^15

= 1000/(1.05)^15= $481.0

  1. Bond price= M/(1+i)^15

= 1000/(1.10)^15= $239.39

  1. Bond price= M/(1+i)^15

= 1000/ (1.15)^15= $122.49

 

3)

Watters Umbrella Company

N= 13 years remaining

Coupon rate= 7.8%

Semiannual payments

Current market price= 105%

= 78+ 1000-1050/ 13/ 1000+1050/2

= 3.60%

4)

13.5 years to maturity

YTM= 7.3%

Current price= $1080

Semiannual rate

CR= 2

[(1080 – 1000 (1+.073)^25 ) / (1000{ 1 – (1+.073)^-25 } / .073 ) ]

= $91.77

 

5)

Par payment= $1,000

25 years to maturity

Coupon rate= 6.4 percent

YTM= 7.6

64* 1-1/(1+.064)^25/.064+ 1000 (1.064)^25

 

= $867.40

 

  • The approximate rate of return is 2.4 percent; the exact rate of return is 2.35 percent. This is because the real rate is the nominal rate minus the rate of inflation.

 

Bond Rate= 4.7%-2.3% (inflation)= approximate real rate of 2.4

 

13) There are two bonds in this example. In the first example, the bond is paying more than the YTM meaning the price will have to increase over the life of the bond. In the second example, the bond is paying less than the YTM meaning that the interest rate will increase over time as the price of the bond decreases.

 

Price

 

15) If interest rates increase by 2%, there is a substantial difference on the lower-rated bond versus the higher rated bond. If interest rates decrease by 2%, there is a substantial difference on the higher-rated bond versus the lower-rated bond. Thus, the higher rating gives the bond issuer more flexibility.

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Finance

Veterans Health System (PPT)

Veterans Health System

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Finance

Stock Analysis: Ralph Lauren Corp.

Executive Summary

            Within the realm of businesses the longevity success is dependent on a number of factors, tools used to evaluate a company’s success are utilized by their shareholders in the forms of financial statements such as the income statement, or cash flow statements. For investors and potential investors looking to buy stock within the company the best tool that they use is stock profile analysis. The object of this report is to provide a clear company analysis provided for the view of an investor in evaluating the probability of buying stock from Ralph Lauren Corporation. Within this report will be an overview of the company’s background, brands, business model, along with a SWOT analysis that details their strengths and weaknesses as a billion dollar global company. Along with the aid of charts and financial analysis will help to guide the investor into future earnings that will net the investor considerable ROI in the next few years. This report recommendation is to buy stock within this company, based on their performance in the last five years, and their future performance.

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Finance

Business Financing and the Capital Structure

Introduction

            Financial management is the balance of art and science to effectively and efficiently utilize money to meet the goals and objectives of the organization.  The goals and objectives are aligned from the strategic vision of the senior leadership all the way through to the front line supervisors’ goals and objectives.  This ensures that all of the effort and projects that are implemented during the lifecycle of the organization’s planning cycle are interrelated and corollary to one another.  This helps eliminate the misappropriation of financial tools and assets.  The art of financial management is mastering the perfect balance between financial tools, monetary assets, utilization balances between operating and capital expenditures and funding the right projects at the right time.  This is complimented by the science and mathematical analysis of the current markets, money markets, debt and equity balances and ultimately the quantitative analysis fortifying key business decisions.  Financial decisions on where capital is used and when it is allocated drives the projects which achieve the goals and objectives of the business.  In any project there are three constraints that are always interrelated.  The three constraints are scope, schedule and cost.  The financial management decisions made are directly related to the operations of the business and the business’ ability to be successful.  Throughout the financial management area of responsibility there are key functions that occur which encompass budget and forecast estimates, working capital management, raising capital through debt and equity options, outside investments into the organization, portfolio diversification and risk management.  While the list is not all encompassing of the financial management role and responsibilities they do include key functional areas that facilitate financial success for the organization.

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Finance

Freedom Communications, Inc: Family Enterprise or Liquidity?

Situation

Freedom Communication is a family media enterprise that is operated on very strong family cultures.  Raymond C. Hoiles (R.C.) a passionate voluntaryist and libertarian, founded the company.  The family ran company has been handed down from generation to generation to remain a family owned and operated company.  In 1982, the company sought outside help and the board appointed non-family executives as CEOs.  James Rosse was appointed from 1992-1999.  He supported the family business aspect and re-energized the family involvement.  He implemented the G3/G4 Family Issues Committee, or as referred to in 1998, the Family Council.  The company passing from family to non-family, back to family controls no relevance in the final outcome.

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Finance

Bush Tax Cuts

According to a Newspaper written by Heffner, (2003), unemployment hard risen and so many people were on the streets looking for employment and unfortuniterly their were no job. In the previews three years the people of the United States  heard lost a lot of jobs, companies were falling  and  the economy was falling too. So many people were forsed to resign from their jobs and go look for employment else where. So Geoger W. Bush’s gorverment heard to do something and do it quick, either to find employment for the people or to find a way of creating employment for the people of America.  According to Bush increase of tax revenus was the only way, increase the tax for everyone, those people whose earn more should pay more tax, those who earn average sholud pay average and their will be others who do not pay anything and they are mostly the ones he was trying to find employment for.

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Finance

Current Issue Essay Presentation

Question in Focus:

What happens to the price of imports if a country’s currency is weak?

Back in the days before the occurrence on the hard blow of the weakening state of the international trade system and financial stand, it was a good thing if a country has a strong currency. It meant stability and confidence on establishing and supporting local businesses. However, when the financial down turn happened at the beginning of year 1997, situations changed. It seemed that the ones who have higher currency values are the ones who suffered more because of the sudden adjustment in the market. Hence, as a result, there is now a sense of difference in seeing the value of a high currency status of a country compared to the weakness of another nation’s currency.

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Finance

Finance Article Analysis

A recent article in Businessweek reports that treasuries are off to worst start since 2003 as the economy is expected to be recovering (Eddings and Austen). The article states the yield on benchmark 10-year notes have climbed 16 basis points or 0.16 percent. The rise in yield means the demand for the treasury notes has declined because the price and the yield of the bonds have an inverse relationship. The declining demand for treasury notes led to a decrease in their price which had the adverse effect of a rise in yield.

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Finance

“How Venture Capitalists Evaluate Potential Venture Opportunities” Summary

This article describes a set of interviews with four Silicon Valley financial venture organizations regarding the framework they employ when evaluating potential opportunities. The participating firms include Kleiner, Perkins, Caufield, and Byers (KPCB), Menlo Ventures, Trinity Ventures, and Alta Partners, all of which have made substantial contributions to keystone organizations throughout the industries of technology and science, among others. Each business responded to several questions of a similar nature covering themes such as the assessment of business models, due diligence, financial analysis, decision processes, the role of risk, and the utility of exit routes.

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Finance

“Honing in on Cash Conversion” Summary

Chapter 28 titled “Honing in on Cash Conversion” was did exactly that–it took direct applications of various business terms, and show a direct equation to figure out how long it will take for a business to become profitable, as well as how much money an individual company takes to finance.

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Finance

real problem-issue case

1.

  1. Project A: 21000/21000=1

Project B: 23666/16000=1.48

Project C: 35999/17000=2.12

Project D: 33332/15000=2.22

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Finance

Mini Case Assignment

  1. What is the real interest rate (risk free)? What is the nominal interest rate (risk free)? In what sense they differ and how these two are measured?                                                                                                                                      Real interest rate is the nominal interest rate minus the inflation rate. When used as a forward looking tool, the inflation rate must be estimated, meaning there might be discrepancies between real interest rates by different parties. The nominal interest rate does not take inflation into account. It is just the return on the principle over the principle per annum.
  2. Briefly explain the concepts of total risk and market risk.                                                                                        Market risk is the level of risk a portfolio or investment faces due to fluctuations in the market. These are the risks faced due to factors such as GDP growth or inflation. Total risk is the risk faced from market risk as well as the unique risk. Unique risk is the risk an investment faces due to its own situation, such as competitors or their own cost levels.
  3. Does the expected rate of return on a portfolio of shares depend on the percentage of portfolio invested in each share? What about the riskiness of the entire portfolio?

    The expected rate of return is dependent on the proportion of the portfolio dependent on each share. This is because one step in calculating the number is multiplying the expected rate of return for each type of share by its proportion. Riskiness is dependent on the proportion as well, as there is the unique risk faced by each investment, and the investments carrying more unique risk will bring more risk to the portfolio as their share of it increases.

  4. What is the Capital Asset Pricing Model (CAPM)? What are the assumptions underlying the model?                The CAPM is a model that can be used to determine the rate of return required to make a given investment worth adding to a larger portfolio. The model assumes large degrees of economic rationality and being able to act properly in one’s own self interest, including that they are economically self interested and have protected themselves from risk. They must also not be influential enough to influence prices, instead being price takers. Also, it assumes little outside influence, meaning no money is lost to tax and an unlimited borrowing ability at a certain rate.
  5. Financial Mgrs are more concerned with investment decisions relating to real assets, such as PP&E than with investment in financial assets, such as securities. Do you consider being any difference? How this statement does relates to real asset investment decisions especially corporate budgeting decisions?

    PPE is more analyzed due to the extra types of risk that therefore require more analysis.

  6. Why are discounted cash flow (time value of money) concepts so important to corporate financial analysis? Time value of money analysis must be used to account for the fact that money in the future is not as good as money in the present. This is due to the expected lowered purchasing power of money in the future. Also other investments making a return cannot be undertaken if the money is not available in the future. Time value of money therefore adjusts the concept of opportunity cost.
  7. What are the four steps in a DCF analysis?

    Step one is to project future cash flows. Next, compute the discount rate which is the weighted average cost of capital, which is the ratio between the total cost of equity and cost of debt. This is used to discount the projected cash flows, and then subtract the liabilities from that to get the value of an investment.

  8. How is the value of an asset determined? (hint: assume value is related on expected future cash flows)  Financial assets are evaluated by projecting the cash flows of the assets. The cash flows are then discounted until all numbers are in present value. These values are them summed to give an estimated value of the asset.
  9. What is the opportunity cost concept?                                                                                                                          Opportunity cost is the value of the things given up to pursue another action. In financial terms, opportunity cost is what was given up when one investment opportunity was passed up in favor of another.
  10. What’s a perfect capital market? How is the concept of perfect capital markets used in finance theory?

    A perfect capital market is one that does not feature transaction costs, risks of bankruptcy wiping out payments due to the asset holder, and perfect information for all actors. This is used as a way to determine the value of a company independent of its capital structure.

  11. What are the key features of a bond?                                                                                                                                      A bond is a loan that features the repayment of principle and interest at a certain schedule. The person holding the bond is a creditor and does not get equity in the party he has lent the money to.
  12. What is the Efficient Markets Hypothesis (EMH) and what are its three forms?                                                      The EMH states that investors cannot achieve a higher rate of return than the market rates without taking on a larger share of risk. Weak form efficiency states that prices will differ from equilibrium without allowing investors to profit from this due to the difficulty in predicting. Semi strong form states that prices adjust so quickly with new information that no one can profit by acting quickly with information. Finally, strong-form is the theory that share prices are always at equilibrium with open information, meaning there are no inefficiencies to find.
  13. What are the key features of a common share or stock and how differ from preferred stocks?                      Common stock is the standard understood form of stock where the paying of dividends can vary, leading to higher risk and higher potential for returns than preferred stock, where the terms include specific pre determined dividend payouts.
  14. What is meant by the term project’s NPV? What is the rationale behind the NPV method? According to NPV which projects should be accepted if they qualify as independent? Mutually exclusive?

    NPV is net present value, the total of present values amongst all entities. It calculates whether or not the investment is a worthy venture by comparing the present value of the investment’s cash flows to the purchase price that must be paid out immediately. Those with a higher present value than the cost, a positive net present value, should be undertaken. If two or more investments are mutually exclusive, the one with the highest NPV should be undertaken.

  15. What is capital budgeting and what does the term “Risk” mean in the context of capital budgeting process?Capital budgeting is a process that attempts to assess the worthiness of an investment in a piece of capital. A net present value is calculated and compared to a benchmark return for investments. Risk is the chance that the capital will have a lower return than expected and can be adjusted for with a higher discount rate when calculating the NPV.
  16. What are the three types of risk relevant to capital budgeting and how is each of these risk types measured and related to each other?