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Financial Accounting Assignment : WACC

   

Added on  2020-01-28

11 Pages1989 Words53 Views
Accounting & Finance

Table of ContentsINTRODUCTION...........................................................................................................................3PART A...........................................................................................................................................3Stating the extent to which company should consider ethical considerations in the capitalbudgeting process........................................................................................................................3PART B...........................................................................................................................................4i and ii Calculating WACC..........................................................................................................4iii. Recommending alternative capital structure which may result into lower cost of capital.....5PART C...........................................................................................................................................5a. Payback period.........................................................................................................................6b. Discounted payback period......................................................................................................6C. Determining net present value of project................................................................................7d. Assessing profitability index of project...................................................................................8e. Identifying the internal rate of return associated with the project...........................................8f. Assessing the viability of project.............................................................................................9g. Evaluating the viability of project when PV factor is 20%.....................................................9CONCLUSION..............................................................................................................................10REFERENCES..............................................................................................................................11

INTRODUCTION Accounting is the main aspects of finance which in turn helps in presenting the fair viewof financials. In the dynamic business arena, it is highly difficult for the business entity to takeappropriate decision that aid in the growth and success of firm. Thus, by employing financialtools and techniques manager of the business unit can select best proposals for the purpose ofinvestment. Besides this, capital structure which has setting down by the company also has directimpact on its profitability aspect. In this, report will provide deeper insight about the debt-equitywhich business unit should follow. Besides this, present report will also shed light on the mannerin which capital budgeting tools help in making viable and profitable decisions.PART A Stating the extent to which company should consider ethical considerations in the capitalbudgeting process Capital budgeting may be defined as a tool which in turn helps in evaluating theprofitability aspect that is associated with the proposed investment. Payback period, NPV andIRR are the most effectual tools which in turn helps in identifying the extent to which specificproposal will offer higher return to business entity. Business entity can build distinct image inmind of target market only when they follow ethical aspects. Thus, at the time of makingselection of proposal manager of the company is required to consider ethical aspects andconsiderations (Nicholson & Aman, 2012). By doing this, firm can build effectual image in themind of stakeholders and thereby would become able to enhance brand image. Thus, managershould consider the aspect of environment sustainability while choosing one project out ofseveral. The rationale behind this, now individuals prefer to purchase products or services fromthe business unit which follow ethical aspects. Thus, manager should not invest money in theproject which places bad impact on environmental aspects irrespective the aspect that projectoffers high return. Hence, financial analyst and project manager of firm should consider theaspects of environment sustainability while taking decision about investment.

PART B i and ii Calculating WACC Assumptions for CAPM Particulars Figures Ke (Cost of equity)7.00% Rf (Risk free rate of return)3.0%β0.50Rm (Return on market)8%Computation of Enterprise Value (EV)Particulars FiguresMP (CurrentMarket Price)0.031 Shares issuedduring the period 109,677,419 MF (Marketvalue of the firm) 3,400,000 Loan: Long termdebt218,586 Less: Cash &Cash Equivalents261,678 EnterpriseValue 3,356,908 Computation of debt-equity mix Particulars Figures

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