Corporate Finance: NPV, Payback Period, Mergers

Corporate
Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1 ...........................................................................................................................................3
Viability of different project based on NPV and Payback period:.........................................3
TASK 2............................................................................................................................................4
Merger and different type of mergers:....................................................................................4
Motive of mergers: ................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Corporate finance refers to a field of finance that concerned with investment decisions,
financing and capital formation or restructuring. It is mainly concerned with enhancement of
shareholder's wealth using short term and long term financial planning, and strategy
implementation (Brealey and et.al., 2012). This report contains practical knowledge of net
present value, payback period of different projects, different types of mergers and good motive
of mergers.
TASK 1
Viability of different project based on NPV and Payback period:
NPV (Net Present Value): It refers to variation between present value of cash outflows and
inflows during a particular period of time. It is applied in capital budgeting and to evaluate the
viability of any project or investment. Following is the formula for calculation of NPV:
NPV = Present value of cash inflows less Present value of cash outflows
Payback Period: Payback period refers to certain period of time it takes to retrieve initial cost of
investment (Damodaran, 2016). Discounted pay back is calculated when opportunity cost of
capital is given. Following is the formula of discounted payback period:
Discounted Payback Period = A + B
C
Where,
A = Last period with a negative discounted cumulative cash flow;
B = Absolute value of discounted cumulative cash flow at the end of the period A; and
C = Discounted cash flow during the period after A.
Project - A PV@12% A
PV of Cash
flow
Cumulative
CF
0 1.0000 -2,000.00 -2000.00 -2000.00
1 0.8929 2000.00 1785.71 -3785.71
NPV -214.29
Payback Period
=
Insufficient
data