This document discusses topics related to Business Finance, including systematic risks, general math questions, and a case study. It provides insights into the sources of systematic risk, diversification strategies, probability calculations, intrinsic value calculations, and loan amortization. The document also includes references for further reading.
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Running head: BUSINESS FINANCE Business Finance Name of the Student: Name of the University: Author’s Note:
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1BUSINESS FINANCE Table of Contents Reflective Discussion Question 2 (Week 1 and 3).....................................................................2 General Math Questions (Week 1 – 5).......................................................................................2 Case Study 2 (Week 1 & 4)........................................................................................................3 References..................................................................................................................................6
2BUSINESS FINANCE Reflective Discussion Question 2 (Week 1 and 3) Systematic Risks refers to the risk associated with a company in the form of risk associated with the market returns. These risks can be attributed to various broad factors and the risk is in association with the investment portfolio that cannot be attributed to the specific risk of the various individual investment that will be done by the company. The sources of systematic risk is specific in the context of the industry and companies operating in the same industry (Forouzanfar et al., 2016). The sources of the systematic risk for a company can be in the form of inflation factor, changes in the interest rates, fluctuation in the value of currency, recession in the economy are some of the risks which are market based and can significantly increase the volatility in the overall market. Investment in the mining industry by the investors in the form of high risk and return for the investors (Waemustafa & Sukri, 2016). Industry Specific or Market Risk well attributed as Systematic risk is quite high for the company and on the other hand the unsystematic risk for the company in the form of company specific risk is low. Investors can diversify the level of investment associated with the investment in the form of low defensive or diversified product Portfolio Company so that the variability in the market factors does not significantly impact the investment return of a stock. On the other hand unsystematic risk for a company can be diversified with the help of diversification of investment fund across companies in an industry (Savor & Wilson, 2016). General Math Questions (Week 1 – 5) a) The probability of the risk return from the asset would be calculated with the help of the return generated by the asset under the various probability approach taken into consideration. The standard deviation for the asset was calculated to be around 2.09% (Griffiths & Lucas, 2016).
3BUSINESS FINANCE Probability (P)Return {R}P*R 35%10%3.50% 40%17%6.80% 25%7%1.75% Standard Deviation2.09% b) The intrinsic value for the share was derived to be around 2249.9909 for the company where the dividend growth model was applied and the respective growth rate were applied for the purpose of discounting and applying the same in the due course of business. On the other hand the market value of the share was around 2500 that stats that the share is currently overvalued and should not be purchased because of its high valuation after assessing the growth and profitability of the company (Wang, Wang & Wang, 2016). ParticularsYear 1Year 2Year 3Year 4Year 5 Residual Value Dividend (D1)220250.8 285.91 2 325.939 7 358.533 62987.7804 Growth Rate (G)14%14%14%10%10%- Terminal Growth Rate (Vg)-----5% Required Rate of Return (Re)17%17%17%17%17%17% Discount Factor0.8550.7310.6240.5340.456 Present Values (P.V) 188.03418 8 183.212 8 178.51 5 173.937 7 1526.29 1 Total Intrinsic Value (I.V)2249.990904 Case Study 2 (Week 1 & 4) The amount that will be paid from the savings at the time of purchase of the car would be around 9613.39. The future value was determined with the help of the initial investment whichwasaround8,000andtheinterestratethatwastakenonaquarterlybasis
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4BUSINESS FINANCE compounding.Thetotalnumberoftimeperiodtakenforthepurposeofinvestment consideration was around 9613.39 (Iamsiraroj, 2016). Savings Growth Table Quarter Opening Balance Interest Rate Interest Amount Closing Balance 18000.001.15%92.398092.39 28092.391.15%93.458185.84 38185.841.15%94.538280.37 48280.371.15%95.638376.00 58376.001.15%96.738472.73 68472.731.15%97.858570.58 78570.581.15%98.988669.55 88669.551.15%100.128769.67 98769.671.15%101.288870.95 108870.951.15%102.458973.39 118973.391.15%103.639077.02 129077.021.15%104.839181.85 139181.851.15%106.049287.88 149287.881.15%107.269395.14 159395.141.15%108.509503.64 169503.641.15%109.759613.39 Total Amount that would be paid at the time of Purchase will be 9613.39 b) The amount that would be taken as part of the loan would be the final value of the saving derived plus any additional cost incurred from the same in the form of loan application fees. Total Loan Amount ParticularsAmount Total Car Value28,000 Less: Savings Deposit - 9613.39 Add: Loan Application Fees100 Total Loan Amount 18,486. 61 The annual repayment of the loan will be as follows: Annual Repayment of Loan YearRepayme
5BUSINESS FINANCE nt 1 10356.45 724 2 9720.369 284 Total Amount 20076.82 653 c) The loan amortization table was prepared with the help of the various actions that will be taken into consideration for the purpose of valuing the full and final repayments and interest amount associated with the borrowings. YearLoan AmountInterest RateInterest AmountTotal OutstandingRepaymentsClosing Balance 0.518,486.613.44%636.08819,122.695257.73961813,864.95 113,864.953.44%477.06614,342.025098.7176279,243.30 1.59,243.303.44%318.0449,561.354939.6956374,621.65 24,621.653.44%159.0224,780.674780.6736470.00 Loan Ammortisation Table
6BUSINESS FINANCE References Forouzanfar, M. H., Afshin, A., Alexander, L. T., Anderson, H. R., Bhutta, Z. A., Biryukov, S., ... & Cohen, A. J. (2016). Global, regional, and national comparative risk assessment of 79 behavioural, environmental and occupational, and metabolic risks or clusters of risks, 1990–2015: a systematic analysis for the Global Burden of Disease Study 2015.The Lancet,388(10053), 1659-1724. Griffiths, M. R., & Lucas, J. R. (2016). Economic Value and Intrinsic Value. InValue Economics(pp. 143-174). Palgrave Macmillan, London. Iamsiraroj, S. (2016). The foreign direct investment–economic growth nexus.International Review of Economics & Finance,42, 116-133. Savor, P., & Wilson, M. (2016). Earnings announcements and systematic risk.The Journal of Finance,71(1), 83-138. Waemustafa, W., & Sukri, S. (2016). Systematic and unsystematic risk determinants of liquidity risk between Islamic and conventional banks. Wang, J., Wang, Y., & Wang, D. (2016, May). Empirical Analysis of Establishing an Intrinsic Value Evaluation Model of Listed Companies Based on Multivariate Linear Regression Method. In2016 InternationalConferenceon AppliedMathematics, Simulation and Modelling. Atlantis Press.