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Corporate Finance Essay

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Below is an essay on "Corporate Finance" from Anti Essays, your source for research papers, essays, and term paper examples.

Table of Contents

Corporate Finance Strategy - (CFS Written Course Work Assignment) 4
Part A: Investment Appraisal 4
Project First Versus Project Second 4
(a) Payback Period 4
(b) Accounting Rate of Return (ARR) 5
(c) Net Present Value 6
(d) Internal Rate of Return 7
Summary of Results: 7
Comparison of Rankings: 8
Definitions 8
Payback Period (PP) 8
Accounting Rate of Return (ARR) 8
Net Present Value (NPV) 8
Internal Rate of Return (IRR) 9
Advantages and Disadvantages of Budgeting Techniques 9
Popularity of Investment Appraisal Techniques 10
Weighted Average Cost of Capital (WACC) 12
Calculating WACC 14
Part B: Dividend Policy 14
Conclusion 16
References: 17
APPENDIX 1 18



Corporate Finance Strategy - (CFS Written Course Work Assignment)
Part A: Investment Appraisal

Project First Versus Project Second
The expected cash flows for the two projects are given below. The cost of capital is to be taken as 10%.
Cash Flows over 5 years
| Project First (€) | Project Second (€) |
Year 0 | (30,000) | (30,000) |
Year 1 | 3,000 | 23,000 |
Year 2 | 12,000 | 15,000 |
Year 3 | 18,000 | 14,000 |
Year 4 | 22,000 | 10,000 |
Year 5 | 25,000 | 4,000 |

Calculate the:
  (a) payback period,
  (b) accounting rate of return,
  (c) internal rate of return and
  (d) net present value

  (a) Payback Period

Step 1 - Draw up tables with the cash flows and cumulative cash flows.   Cash inflows are to be added up in the cumulative cash flow column. Additions may halt once the cumulative values are equal or greater than the original investment at year 0.

  | Project 1 (€) | Cumulative (€) |
Year 0 | -30,000 | |
Year 1 | 3,000 | 3000 |
Year 2 | 12,000 | 15000 |
Year 3 | 18,000 | 33000 |
Year 4 | 22,000 | |
Year 5 | 25,000 | |


  | Project 2 (€) | Cumulative (€) |
Year 0 | -30,000 | |
Year 1 | 23,000 | 23,000 |
Year 2 | 15,000 | 38,000 |
Year 3 |...

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"Corporate Finance". Anti Essays. 16 Dec. 2018

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Corporate Finance. Anti Essays. Retrieved December 16, 2018, from the World Wide Web: https://www.antiessays.com/free-essays/Corporate-Finance-414916.html