logo

Corporate Accounting Assignment Net Present Value

3 Pages921 Words50 Views
   

Added on  2020-05-11

Corporate Accounting Assignment Net Present Value

   Added on 2020-05-11

ShareRelated Documents
Solution 19-17a.Net present value refers to the value which comes after adding all cash inflows andsubtracting all cash out flows at their present value [ CITATION Rem95 \l 1033 ]. The presentvalue under this method of calculating net present value, calculated by discounting allcash inflows and outflows at the risk adjusted cost of capital. Positive net present value ofany project denotes that project will enhance the wealth of shareholders of theorganization on the other hand acceptance of a project having a negative net present valueof any project concludes the destruction of shareholder’s wealth.In the present case, a US based company is going to make an investment in the financialplan for a year. This project needs $1000 in the starting of the first year and earns $1200at the end of the year. Discounting rate i.e. risk adjusted cost of capital is 12%.Net present value for this project can be calculated in this wayNet present value = -Present value of cash outflow + Present value of cash inflowNet present value = -1000+ 1200/ (1.12)Net present value = -1000+ 1072.43Net present value = $71.43Therefore if the company is established in the US and does not need to make the foreignexchange from the project then the net present value of the project in consideration is$71.43. It also concludes that this project will increase the wealth of shareholders of theorganization.b.In the present scenario, organizations cross the countries of the country. Henceorganizations need to trade between currencies of various countries. A currency of acountry can be converted to the currency of another country on the same day by using thespot rate of converting that currency in the other currency. However, sometimesorganizations need to know regarding the currency conversion rate for any future date.This currency conversion rate is known as a forward rate [ CITATION Fam84 \l 1033 ]. Theforward rate can be calculated by using the spot rate of the home currency and the riskfree yield rate of securities in both countries. In the present case, Solitaire Machinery is a multinational company situated in theSwitzerland and doing business by using Swiss franc as money. The company is seekingfor the financial plan for a year in the United States. This financial plan will need toinvest US dollars in the United States earn in US dollar for the year thereafter convertthat earning in the Swiss franc at the end of one year. Net earnings from this process inthe Swiss franc can be calculated by the company by making calculations regarding theone year forward rate of converting US dollars in to the Swiss franc. This calculation canbe made in this way,Forward rate = Spot rate of home currency * (1+ yield rate in Foreign country) / (1+ yieldrate in home country)Forward rate = 0.9* 1.05 /1.0325
Corporate Accounting Assignment Net Present Value_1

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Math Assignment Question 2022
|5
|463
|29

ESSAY Accounting of the projects
|5
|1003
|387

Profit and Loss Statement for First Year of Operations
|13
|2289
|86

International Financial Management: Calculation of NPV and Standard Deviation
|15
|3357
|158

Managerial Finance Solution - PDF
|8
|1285
|22

THE HEALTHCARE MANAGEMENT
|6
|533
|21