1.0 Introduction
Finance is a mixture of both economics and accounting. Finance is generally concerned with three main areas which are corporate finance, capital markets and investments.
Corporate finance or financial management is related to decisions made by a company which involves what and how much assets should a company attain and secured to maintain the optimum level of performance and maximize the asset's value.
Capital Markets refers to the market where the
It is very important for the manager of a business to select a suitable source of finance because
There are two types of financing, long term and short term to medium term financing.
1.1 Long Term Financing
Long term financing can be divided further into two which are debt and equity sources.
Key characteristics
Long term financing mean that the will be more than one year.
1.1.1 Long Term Debt
Most common long term debt is debentures.
1.1.2 Preferred Stock
1.1.3 Common Stock
1.2 Short Term Financing
Bank overdraft, trade credit, factoring and invoice discounting, hire purchase, leasing and others are examples of short term source of financing. There are useful for business to solve short term financial problems because they can be borrowed at short notice and are flexible, meaning that the business can borrow any certain amount within a limited range (e.g. bank overdraft) or use to finance an asset (e.g. hire purchase).
1.2.1 Secured Borrowing
The meaning of secured borrowing is that there are assets which are pledged against the debt as collateral. If in the occurrence that the debtor wouldn't be able to repay the loan and forfeited, the creditor will collect the pledged asset as payment for the debt. Usually, the collateral would make up ...
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...ing Rate of Return (ARR)
4.2 DCF Investment Appraisal
DCF or discounted cash flow
There are two choices which a business could choose from, net present value (NPV) and internal rate of return (IRR). Net present value
Both of these methods are far more superior to traditional investment appraisal methods as mention previously. As comparison, NPV solves all three problems mentioned before in payback period.
NPV
takes into account of all timings of cash flows
5.0 Advanced Investment Appraisal
As mention before, discounted cash flow is by far more superior from traditional investment appraisal methods. However, to make use of it, to more accurately reflect the real
5.1 Inflation and Taxation
5.2 Capital Rationing and Sensitivity Analysis
7.0 Conclusion
All of the above are interrelated to each other to improve the accuracy of the calculations.
That leaves us with three relevant measures: IRR, NPV, and Profitability Index. Among the three NPV will be preferred to the IRR and
...eting tool that show the differences between the present value of revenues and the present value of expenses. The project can be profitable when the net present value is positive. In other words, the present value of revenues is greater than the present value of expenses. Profitability index is another tool for evaluating investment projects, which is the ratio of the PV of benefits on the PV of costs. A project can be beneficial if the profitability index is greater than 1. Also, it has the same idea as NPV that In other words, the present value of benefits is greater than the present value of costs. However, these two methods (NPV and Profitability Index) have been used to evaluate the proposal of implementing EHR.
This object is one of the financial goals to invest properly. Marriott used discounted cash flow techniques to evaluate potential investment. It is beneficial because it is considered present time value. Projects which increase shareholder value could be formed with benchmark hurdle rates, the company can ensure a return on projects which results in profitable and competitive advantage.
The second method we used to analyze the firm’s value was the Comparable Companies Method. We used the historical figures as of 1990 and Goldmans Sach’s Projections. With an average of 22.
Discounted cash flow is a valuation technique that discounts projected cash inflows and outflows to evaluate the potential value of an investment. There are three discounted cash flow methods: Net Present Value (NPV), Profitability Index (PI) and Internal Rate of Return (IRR). The net present value discounts all cash inflows and outflows at a minimum rate of return, which is usually the cost of capital. The profitability index refers to the ratio of the present value of cash inflow to the present value of cash outflows. The internal rate of return refers to the interest rate that discounts cash inflow projections to the present to ensure that the present value of cash inflows is equivalent to the present value of cash outflows (Brown, 1992).
Present theoretical arguments for the choice of net present value as the best method of investment appraisal;
and compare the strengths and weaknesses of the NPV approach to two other commonly used approaches.
Borrow long-term loans from local banks – These are a common way of financing major purchases of an organization. An advantage is that it is directly linked to an organizations operating capacity. Another advantage of long-term loans from local banks is that it enables a firm engage in large projects. Although its disadvantage is that the banks charge high interest rates.
Research on the Sources of Finance for a Business Firms sometimes need to raise finance for Working Capital and Capital Expenditure. Explain what each is and give examples. · Working Capital (or Revenue Expenditure) The working capital is made up of the current assets net of the current liabilities. It is vital to a business to have sufficient working capital to meet all its requirements. Many businesses have gone under, not because they were unprofitable, but because they suffered from shortages of working capital.
Many organizations have maximized the use of cash on hand by effective cash management techniques and the use of short-term financing. This paper will discuss various cash management techniques and short-term financing methods used by organizations.
There are many different sources of short and long term capital in the market. Here are a few examples:
My interest in Accounting and Finance stems from wanting to understand how governments and businesses make their vital decisions to be profitable. Studying this degree, will allow me to gain an understanding of financial accounting, management accounting and taxation providing me with skills to analyse data and develop my decision making. Additionally being able to incorporate different aspects of business alongside the core modules; will give me more knowledge of the world of accounting and finance.
There are two main ways to raise money for a project, growing business, or startup company: debt financing and equity financing. Debt financing includes long-term loans, while equity financing is the process of raising capital through the sale of shares in an enterprise. It is essentially the sale of an ownership interest to raise funds for business purposes.
Managing an organization’s financial operation requires a good understanding of the economy and ways to maximize revenue. For an organization to operate on a daily basis, adequate cash flow is required. Poor cash management within an organization might make it hard for the organization to function because there may be shortage of cash in case of inconsistences in the market. In most companies, management is interested in the company 's cash inflows and outflows because these determines the availability of cash necessary to pay its financial obligations. Management also uses this information to determine problems with company’s liquidity, a project’s rate of return or value and the timeliness of cash flows into and out of projects (used as inputs
Corporate finance is different than accounting in that corporate finance relates to valuation and financing decisions. The purpose of accounting is to create statements that lay out the historical financial health of a company for management and investors. The purpose of corporate finance is to apply the results of these statements (along with intangibles such as the strength of the industry and the management team) to a valuation model in order to arrive at a value for the company.