FINANCE FOR BUSINESS

 

 

 

Table of Contents

Question 1. 4

Part A) 4

Section i) 4

Section ii) 5

Part B) 6

Question 2: 7

Question 3: 10

Question 4. 12

Part A) 12

Part B) 13

Part C) 16

Question 5. 16

Part A) 16

Part B) 18

Part C) 19

Part D) 20

References: 21

 

Question 1

Part A)

Section i)

The time value of the fund is a prominent concept that defines that the actual utilization and the present value of the funds within the business premise are relatively more important and valuable in the present market with respect to the actual value of the funds in the future course. As per the critical review of Shrotriya (2019), it is ascertained that the value of money as of date is known as the present value of money while the value of money on a future date is known as the future value of money. In addition, it is ascertained that the process of developing and integrating the time value of the money within the market provinces. On the other hand, it is ascertained that the evolution of the time value of the money is prominent in the process of interpreting and developing several business decisions with multiple investment projects that outlays several different cash flow within the market provinces in the market economy.

As per the critical assessment of Mujahidin 2022), the effect of inflation is the eradication of the purchasing power of money and the value of money is more today, in comparison to what it would be on a future date. Hence, considering the present scenarios it can be said that the consideration of the $30,000 in the present market is more effective with respect to the evaluation of the $ 150,000 in the future accounting years due to losses in opportunity costs.

Section ii)

Table 1.1: Calculation of the time required to gain the value of $ 150,000

(Source: Self-Created)

The time value of the money is the most significant measure that helps in the evaluation of the total amount of the fund considered within the business economy. Therefore, considering the present case scenario of the study in the market provinces, it is ascertained that Atita has to wait a period of 7.3 years to gain a total maturity amount of $ 150, 000 within the market provinces in the market economy. In addition, it can be stated that the evolution of time with the use of the formula of the time value for money has effectively helped in promoting as well as in developing the main requirement within the business study.

Part B)

Table 1.2: Calculating the future value of the amount

(Source: Self-Created)

The development and the interpretation of the future value of the investment develop and indicate the actual amount of the investment and the amount after a certain period in the market provinces. Therefore, considering the present financials of the case scenarios, it is ascertained that the future value of the investment after a tenure of five years has been represented at the levels of $19381.00 within the market provinces. Hence, it can be suggested that the future value of the investment will be profitable as the amount will be much higher than the present amount of $ 13,500.

 

Question 2:

a)      

The major difference from the money markets is these are created for executing investments for short-term periods concerning less risk. These factors can create effective measurable values for the businesses. On the other hand, capital markets can be defined as more effective by concluding the longer-term execution. According to Wang & Wang (2022), it also has more scope for gains and losses. Therefore, the money market can evolve the trade concluding debts in the short-term aspects. This factor also evolves a constant cash flow of corporations, governments, and financial institutions, along with bank borrowings. These aspects have created a betterment of the money market and its operators by lending finances for short-term executions as overnight and no longer than a year. The money market evolves lending systems for short-term execution. It also creates governments, corporations, banks and so on areas for determining their trades in the market. These evaluations can critically determine the major differences between these two markets.

In comparison with this, the capital market can be determined as encompassing the financial trade in both bonds as well as stocks. Based on the thoughts of Wei & Han (2021), it can be determined as a long-term asset that has been bought by professional brokers, financial institutions, along with individual investors. The major key facilities of the capital markets are long-term investments in the business. It also provides stock issues and other bonds in terms of raising money to develop their businesses. Therefore, it can be figured out that the overall identification of their risks is determined here in this process.

The major differences are that the Money Market evolves Over Counter transactions whereas the capital market evolves exchanges for determining their sales and other trades. The MM evolves a Maturity Period of 1 day to 1 year whereas CM (Capital market) evolves No stipulated time for executing their trades. In addition to this, the companies can also develop Lower risks in the MM whereas CM concludes Higher Risks in these aspects. Based on the thoughts of Yarovaya, Elsayed & Hammoudeh (2021), the overall reliability is underlying in the capital market of the investment. These evaluations can create more effective development for the financial aspects. The overall characteristics of the money market can be determined as mutual funds, commercial paper and Treasury bills. In contrast with this, the capital market excludes financial instruments that are debentures, shares, bonds and so on.

b)

i)

Table 2.1: Expected return

(Source: Created by the learner)

These facilities are involved in these markets and have evolved Market risks of 0.008% in X whereas Y has 0.75. It has been determined that X is being sorted and has more risks in Y by the overall development of the business requirements through financial aspects. It can also evaluate their performing capacity in the business execution market.

ii)

The major risk of the portfolio is that it has more scope for issues in terms of having losses in the Y company. Based on the viewpoints of Cheng (2023), the overall risk factors have evolved the development of the business market. It has also generated issues in the business market.

Question 3:

a)

The current total market value of the firm has generated $12500000 in this business. Therefore, the measurements have determined that the business has generated this level of PV in the business execution. It can be evaluated that these execution processes have created a betterment for the future value of the business. The operators can tend to develop these aspects for executing their further changes in the business market.

b)

Table 3.2: Evaluation of the WACC

(Source: Created by the learner)

The overall identification and the measurements have highlighted that the WACC valuation has generated 0.54% of the cost of capital. These identifications have helped to provide a better analysis of the current financial position of the business market. It has highlighted that the company has a stable WACC position in the current market, which implements the overall effectiveness of the business executions. The company can also concern these measurements for the betterment of the business market in future activities.

c)

It can be determined as an important factor for the overall utilization of the market-based weights due to constant changes in market executions. It can also help to measure the effective values which can reflect the current economic claim for the effective measurements. Based on the identification of Faia et al. (2021), their respective financing types can reflect such changes in the market values and outstanding. These factors can lead to creating more effective market changes in the financial evaluations of the business market. Concerning this, the identifications of the current market flaws can be detected and highlighted for a better outcome in the business market. Hence, the calculations and current market identification can be effectively measured in these execution processes. Therefore, the overall developments can be concluded in these aspects.

d)

WACC is a major effective process for determining the risks in the projects due to having a reflection on the "higher risk, the cost of capital", which can be higher. Following this, the internal and external investors can use "adjusted present value (APV)" which can ignore the WACC for a better outcome. These issues can create more issues by determining the vague results in the market identifications. These aspects can also lead to creating huge problems in the business market. The identification of the business market can create more issues in the business market. Relying on these, the changes in the business market cannot be identified and can create issues for executing their market analysis.

Question 4

Part A)

The payback period is one of the most prominent methods in the process of evaluating the actual time period required by the investment that would result in the initial amount invested within the investment projects. As per the critical review of Danylyshyn et al. (2019), it is ascertained that the development of the payback period is an integral and dynamic measure that helps in the process of evaluating the investment appraisal of the investment opportunities present or accessed by the investor or the business in the market economy. Hence, considering the present case scenarios, it can be seen that the evolution of the payback period has helped in the process of developing and indicating the actual period required to return back the initial investment.

Table 4.1: Calculation of the Payback Period of the First Project A

(Source: Self-Created)

The critical analysis and the review of the above table indicate and depict that the overall payback period of the investment of the research study has been developed at the levels of 3 years. Therefore, it can be stated that if the corporation, Potters Ltd considers the first project then it will require a period of 3 years to return back the initial investment amount within the business premises.

Table 4.2: Calculation of the Payback Period of the Second Project B

(Source: Self-Created)

On the other hand, the assessment of Table 4.2 indicates and states that project B of the firm requires a total period of 4 years to return back the initial investment amount within the business economy.

Part B)

The NPV is the actual representation of the net profitability of the organization in the market provinces as per the critical review of Tang (2022), the NPV is an economic indicator present within the business analysis that always results in correct in the evaluation of the economic value of an investment and in ranking mutually exclusive alternatives based on the MARR of the investment decisions applicable within the business premise in the market provinces.

Table 4.3: Calculation of the NPV of the first Project A

(Source: Self-Created)

The assessment of Table 4.3 indicates that the NPV of the first project considered by the entity, Potters Ltd, is ascertained that the NPV of the project has been developed at the level of $ 109.365, which is in positive and profitable terms.

Table 4.4: Calculation of the NPV of the second Project B

(Source: Self-Created)

The assessment of the above table evaluates the profitability of the second project B of the business premises, Hence, it can be seen that the net profitability of the second project has been established at the level of $ 173,340, which is also in profitable terms in the business provinces.

Part C)

The higher the NPV of the project the higher and the more profitable the investment within the business provinces in the market economy. As per obligations made by Magni & Marchioni (2020), it is stated that the consideration of the NPV is the main performance metric that supplies the same recommendation in accept-reject decisions of investment projects. Further, it also helps in comparing the project with respect to other projects with the same sensitivity or perturbations in the market provinces. Therefore, considering the present financial conditions of the case scenarios, it can be seen that the NPV of the first project is developed at $ 109,365, while the NPV of the second project is critically evaluated at the level of $ 173,340.

In addition, it can be ascertained that the NPV of the second project B of the firm is more profitable as it results in higher NPV amounting to $ 173, 340 rather than the value of NPV of the first project developed at $ 109.365 in the market provinces. Hence, the firm, Potters Ltd. should consider the second project for better projection of the profit levels.

Question 5

Part A)

 

Table 5.1: Critical calculation of the value of the bond

(Source: Self-Created)

The evolution of the current value of the bond represents the actual value of the bond within the market premises in the market economy. Therefore, considering the present case scenarios in the market economy it can be seen that the current value of the bond which has a face value of $ 1,000 and a 12% coupon rate invested or 10 from now, it can be seen that it is evaluated at the levels of $ 496.85 in the market economy. Hence, the current price of the bond of company A is developed at $ 496.85 in the market economy.

Part B)

Table 5.2: Critical calculation of the current value of the Company B shares

(Source: Self-Created)

The evolution of the current price of Company B shares through the use of the dividend growth model, is the most significant approach in the process of developing and stating the main financial aspects of the business firm in the market economy. As per the review of Cornell & Gerger (2022), it is mentioned that the present model also known as the Dividend Discount model is a commonly used tool for estimating the cost of equity capital, particularly in the context of utility rate setting and unitary appraisal.

In addition, through the critical assessment of the current scenario, it can be seen that the current valuation of the shares of company B has been estimated at the level of $ 108.33 within the business organization.

Part C)

The presence of stakeholders within the business provinces is an integral factor that helps in evaluating as well as in discussing several curricula factors within the business provinces in the market economy. As per the critical review of Leonidou et al. (2020), the major types of stakeholders that are present within the business economy are the preference stakeholders and the ordinary shareholders within the organizational network. However, the preference stakeholders are considered less risky to the comparison of the ordinary shares within the market economy as it can be seen that dividends for the preference shares are fixed at an adequate rate while the ordinary shares are not fixed within the business premises.

On the other hand, the total amount of the dividend is more for preference shares while the ordinary ones sustain a lesser amount in the share of the dividends of the organizations. Further, the preference shares are priorities on higher levels within the business premises at the time of closing the business operations while the ordinary shareholders are more considered after the payment of the preference shares within the business economy. In addition, the preference shares of the corporation are not easily traded in the market provinces, while the ordinary shares of the business economy are traded on a daily basis in the market economy.

Part D)

A coupon rate can be illustrated as the paid amount to the bondholder, which is mainly issued by a specific authority and is valid till the last date of maturity. However, this Coupon rate differs for the rates deficient by investors and the yield level of maturity. On the other hand, Yield of maturity has been described as the total return which has been earned by an investor until the date of maturity has come. The coupon rate is identified as an amount that is expected by the investor by investing in different types of bonds, annually this rate of the coupon has varied. In contrast, the Yield of maturity is discussed as the rate of market returns of the bond by addressing its mark. Further, it is ascertained that any changes in the interest rates of the economy by the governing authority will not impact the coupon rates of the bond. On the other hand, the increase in the interest rates will significantly degrade the overall price of the bond, impacting the yield of the bond, as it is indirectly dependent on such factors.

 

 

 

 

 

 

 

 

 

References:

Cheng, J. (2023). Modeling and forecasting risk dependence and portfolio VaR for cryptocurrencies. Empirical Economics, 1-26. Retrieved on 14.06.23 from: https://doi.org/10.1016/j.frl.2021.102659

Cornell, B., & Gerger, R. (2022). Let's Get Real About the Dividend Growth Model. Business Valuation Review, 41(1), 23-25. . Retrieved on 14.06.23 from: https://doi.org/10.5791/22-00002

Danylyshyn, B., Bondarenko, S., Malanchuk, M., Kucherenko, K., Pylypiv, V., & Usachenko, O. (2019). Method of real options in managing investment projects. International Journal of Innovative Technology and Exploring Engineering, 8(10), 2696-2699. DOI: 10.35940/ijitee.J9449.0881019

Faia, R., Pinto, T., Vale, Z., & Corchado, J. M. (2021). Portfolio optimization of electricity markets participation using forecasting error in risk formulation. International Journal of Electrical Power & Energy Systems, 129, 106739. Retrieved on 14.06.23 from: https://doi.org/10.1016/j.eneco.2007.12.012.

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Magni, C. A., & Marchioni, A. (2020). Average rates of return, working capital, and NPV-consistency in project appraisal: A sensitivity analysis approach. International Journal of Production Economics, 229, 107769. Retrieved on 14.06.23 from:https://doi.org/10.1016/j.ijpe.2019.07.014

Mujahidin, M. (2022). Time Value Of Money And Sharia Legitimacy. Al-Amwal: Journal of Islamic Economic Law, 7(2), 81-93. Retrieved on 14.06.23 from:https://doi.org/10.21043/bisnis.v4i1.1695

Shrotriya, V. I. K. A. S. (2019). Time Value of Money-The Concept and its Utility. International Journal of Research and Analytical Reviews (IJRAR), 6(1), 85-92. Retrieved on 14.06.23 from:https://www.researchgate.net/publication/337464889

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