AV. Oacepe Hose AG ~_Teefortant tee team 9 & Home work. (Tovestmont afPressail {is what are the advantages and ois advantages of the following + 4. Foy back Period ( week 3) 2 ARR (tweek #) 3. TRR (week 6) i 4. NPV (-meek Ss) + Provide 4 advantages ano) 4 dis advantages for each = Anewer go a 1. Pay back Period advantages 4: Simpl) and easy +0 applt and as aconcepr. b. straight ferwaed to under stand. ¢. using cach few, d+ thoold not be. oer to manipulation bY managerial Peebecences for» Farticwlar accounting Policies . ALARA a4. Fay back Period. dis advarctages 1 a. Wners the time valve of money. b. Ignvrs othe sizes aad timing af cash figs within the pay back Period. ©. Tgr0es"ail cash flows outside the Pay back Peried and -Go doesn't. Consider » he Project as a whole. : 7 | The Compan} rejects all the other Projects after ‘ene Project Pays back L___9uiekur than others. SARA Z ZETA EZ x I EALAS.ARR _advowtages : a Ie Gives avalue in Pecentage terms b._afamiliar ‘measure of rebucn Cc. Pract accounting miion g._teasonabl} simple method to apety can be used to ComPaze, mutually exclusive Poojects Yi + AKR disadvantages x a. Teores the timing of Probity b. Deosn't Consider the diene value of money c. Fials to take into account the fenghe of the Project Wife dl. Woores the sine of the ta vest ement « & NPW advantages: @. Uses Cash flow corher than accourting Profit. b. Takes account of both the amodnt and timing of Project cash fiows. i Project. a NPV dis advantages a. Ts ConcePtuaily i jeult to vader stand . |]b- Pointed cub shat is difficult to estimate thal valves of thy cashitions out Haws. : £. Only Possible to eccept all Projects with Positive NPY in a Perect captial voorkep- Go: Captal is restcieeed on rationed and this can limit the aPplivapilary 0 & Ahe NP¥ division mle. £. “Takes account of all relevant cash Fews-over the tite of an inesiment ASTRA MEpees iaae-l \ a ele |S cale viate, A. Coe of Copteal al r B. Initial Capital = 22% 2. Pegjected Cashflow: ~ Neor Amourt 1 tao00, Bevo G00 Yoo wey of. cre following tovestrrant. x Discount factor » talole opporbenities © ek end of hand ok Answer 6- Present Value we NOV Neat piscourd factor ot SI. cach Flee, ° = = (20 90) t 0.926 {0.000 4260+ 0426 A1o000. 2 0. 8st 8 s00 Goue’ = BSH Ktoveo 2 a. 444 con UA6y = 2444 Aiovee & 0.435 4ec0. 24y0 = 9-435 Alooen 5 : &. 681 Yow 212y 2 6.681 10000 aVotal Net fash Poco 2.6.54 mbes, Inigial Capital Qe 1200 B Stet a Remar B= y Project weold be accepted Since. ahe_ ev more then *o" on Positive: 2 ‘BRR eo Ry + ( nevi yy NPY, NPV, A Ri * Ro. x NPY = X_NPN Smailer fate of) Hebven Higher ate of ret vey Nev of Rg, Nev of R xf in 18@ Question Mov Cant aos Wer with eu having Net Present volue- x NPY total net cash inflow — 7. bial Tavestment * Initial CoPitol _ Eavestewet capital. Re | Rot | Roce Average | Account Rate of ReturnBO! SoS al dh did bd wb db Pw GY Ww aw waa aT Cro u r Fnante Hanager | Trvestment Manager | Organieadion OG © = rnvestment chances } MaxKor it + Tavestment appresial Important for txam for ther) , a_We Shovle)_vse NPY , ARR, TRE are Poy back Period ad vantages and dis advantages. = What Ws tbe digissten cearerin for thw Po back Period 9 * Shorter Period > Poy back Period, x Pewertage trigher > ARR * TE TRR higher Han Nardle cake © Problems” *SH LAAN | Average Profit . “Total Cash Profit Beco Average Profit x 106 Average Tnvestmant AQAA Ay my Nenes of Kife 5 We don't wid Le write Vt iw Exam Average Tovestmont = Taitoal Investment = Booee- stEe 2 28200 ix Average Profit. Ge000 _ 12000) Ss ABR = 12000 5 100 = 9666} 30-4 BSE Yoo00 =O Projecs B wovtd be considerd because. Project A. it has more ARR than SSA CMSA SESSA« Source of Finance: fk. Deb 2. Equity Fo is + Golance Sheet © Statemst of “Finance, Pasition & = hoy ee C © nee Leabiteey © eeoner equity} weece = eoom + boon ah Sz dent Sout i « Polit = tohen Sales more than Expenses x boss. when ExPenses more than Sales & Recoorting x Break evens Sales o Expenses RGtotions Asset Reserved = Retained Profit Amportank 2 Ae ABE co. Gnanted its Asset bY Adebe [hinbitiey of yoo and equity af boo kx x The Source of Finance + b hoan 2. Shaves 9. Sening Me Mortagages 5. Jotat Neatore. 6. Brancial or OPErating lease. 4 Finan cial Soondness + S80 “S98 Atel weney we got it hos cost . — GRAN Qax Troportemt for Exam 9- GQ: Veh} Ws important to. Know the Gost of capital ? in detects 4 -Fapital budgeting decision > coor of Capital ic basic. input fn formation requiced in investment dicisian. Under NPV method Propect will be. accepted ifit has Posie NPV, Vader LRR method afrejeck is accepted iit has a. rebum Yeater than Cost of capital. : EEE IN| _2. decigning Debt Polizy + ushile designing dept Foley and determining -the | | __debt equity Proportions, the fime aims ar minimising the over all est (fa of capital. 3. Performance appraisal : Cast af Capital figure used as bench meirk 1 bo measure the Performance. of the manajement t evsing finance. 4. Dividend decision» act of capital i ale ver) useful. while alding dividend) decision - 7 5. Leasing hive Porshace 4 Working capital mdnagemert > The. eof Cose of taprtal ig also useol in tase wf basingpase pS 2 Reem ple ta Value and market: value uxteghts. The Comfany’s Present book. Values and = From the following information calculate, tnce of the Company using beok market values: 0f-various: Sources of finance! are Giving: below +. A Sources peeeeee Boek Value omg Market Valuo OMB el RL Debentures COMR 100 each)| 800, o00 - ®€, 000 SV Pre Shares (ore too each) |. 200,000 240, 00e s Equity Shores COMR topach)| 1, b00, 000 2, £00,000 dye : i x Lomportort Costs of capital are as helou- Ml i Debentures +1 x Wace = wheighted Average cost ; Preference Capital | 4.47 of Capital in! | Eauiey capital. See iI ; iB [Ariswere—. i : x Book Value ome aa Fintan’. |énme [BERD 7. [won Seago St OF : Debentures [eco.coo | 4/7. Ree oP E 6 He x10 - 29 1 ROP) Prthana. Shores [o0,000 1 | 1497. Peer N= OPM 10 cu G7 f i Foiey Shares, [eeo.o9e |. [Re Aerail xe nico gay i Total 2,000, 000 ~ pwr. 12.49 fe : “Pla Markee value ome’ h - [es [trout bile, 0 [MeaReT. cep thee OF A ; Debentures Bge.000 +1. Se wee, Fe BE mio = 187 ) ° Prefernce Shares | 240,000 PE Eran TLE x22 cio = LOFT Tr 7 fut) Shares [2,200,000 | 1 7. ee re 1x GE new 2]. A i Teste 8,320,000 HACE = IE offIID LEDIIE RRR SR SP RR VRP PROP BO aE IP SUR DRDRPRPR EES a 4 Tt * T| 8 x Bo = # a 3 3 ri a c 4 é o a8) x 9 i a Zz 3 3, coe: #3 1/3 cs Aa 12 xy od fag 73 aga z | 2 & 4g BLS ka § 3] 3 3 4 7 3 2 a : 3 ¢ £8 |2 2/38 Pp. 9 a g 2 5 ge oz Hee FEeeEeEH ee Soa fy 3 xo [es 3 “2 of 1 8 é aed | ; ie Std aEELEEe PRP DDI LODE DPD EN EME AE EAT AY AVM A Em Pot2 Book Value Oxdenple 2: Page. 1B. Weed. apne Fi 10g 12.2018: hare [tio.000 Pe t Ze, 050 | SEE BF | Amownt, CeeieL?. | weighty weighted lost of capital 7. Debentures | 4,000, 000 87. FES oa] BRULG $1002 Ba? | rpelecence Be0,e00 | 15.97 PE x00. 12.5), 15-4 K 12S st00= 1.487, Fieor ao PUSS, x USB a loon 4.32], Total 2, t¥e0,000 wace - (2.62 J. S|s Market valup [Eins [Amok Ey [ weighe 7. [eeghted Cost of Capital 7 Debentures G0, 000 BT Snes | otorcce 154]. 3.3% 008 8,200 Seate-sey 2.220000" '=15/] 84245 ayo. D a) es 15.9% 10.2 + 100 1D 2,000,600 | 16). Eq uty 3 2,000,088 3,320,000, 10% ba 7] 16 k 60.2 + 100.4 62 Toeal “Pieaze con wae = 13.61 7. Portofelio of Youe Project, + 1. Debentvres. 2. Prebernce Share & Equit] choresD Deline CAPM 9 ' 2) Type of Risk x 4 Systematic Risk Un Systematic Risk 2) Benfits of enema 2 4) Kinttation of cape 2 | RE r « Beeelits of cAem 4 Answer 3.-The baste toon of the CAPM is tinea Pélation Ship between R Cebornes On the individual Shares and the Stock market fetus over | p time. =LAPM Can De used not only tw estimee, the enPecked Pebuens \ fro Secuicities wsith difPecing eis Chusactgristics » bub also to AL predict the value of shaves. using the dividend valuation model. f Chem can be ved to Compare Projects off alt diferent cick Clases | KI ond is thue foe superior to a Net Present value Cupv) approach, 4 which vses GolY discovat tate for all Projects, regardless of thier iwv Yd So5 a oa x The Gropany is ConSedring two invest ment ofPortunities with nek Cash Fiow ow tired below: The ONeount vate ig 12 ee. 2 Poy back, Peeitod | ear | Projects A Prejeck B iL ° © 30 900) ( 50 G00) yt {eon . ‘Yooe ol 2 Fooo - i4ooo | 3 tooo 'Fooo | & Seco tFooo. i 5 Seco \4000 ik * Calevlote 24 TRR > (ao Nev 4 Tee) IK 3 ARR 2tCONPV oy x (Ree rR) Cae Neve ~ NP:+ Defra Hedging 2 + Benefit of Hedging 9 L & Tools of Hedging > 1. OPtioos 2. Fubvres + binitatren of Hedging > » Most Sfertant fee team = Whos Explain more in detatle Toportart for Calevlotion +. NPV IRR, fay back Period, ARR. wee ¥ mAdvartages and disadvontages of al i Use Futlnass af cost of Capital (P:3,th, 6 wid | CAPM in decision, Making 7 Tavest ment eppeisal Se We Use fulres and Limitation of tf from “ove owe word 9