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(PDF) The economic effects of capital gains taxation

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Added on  2021-02-19

(PDF) The economic effects of capital gains taxation

   Added on 2021-02-19

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(PDF) The economic effects of capital gains taxation_1
Table of ContentsINTRODUCTION................................................................................................................................3DISCUSSIONS/ WORKINGS.............................................................................................................3Evaluating capital gain/ loss on the basis of constant or dividend growth model...........................3Presenting situation under which zero-coupon bond be selling at a premium................................3Stating implications for finance managers and their decision making process...............................4Stating assumptions regarding risk when using WACC..................................................................4Q. 1 Calculation of performance of Elite Jewellery Ltd. And So Lo Supermarket.........................5(a).....................................................................................................................................................5(b).....................................................................................................................................................6(c).....................................................................................................................................................6(e).....................................................................................................................................................6(f).....................................................................................................................................................7(g).....................................................................................................................................................7Q. 2 Calculation of Intrinsic/ Market valuation of Entroc's LTD....................................................7(a).....................................................................................................................................................7(b).....................................................................................................................................................8(c).....................................................................................................................................................8Q. 3 Evaluation of project and decide to whether invest in which project......................................9CONCLUSION....................................................................................................................................9REFERENCES...................................................................................................................................11
(PDF) The economic effects of capital gains taxation_2
INTRODUCTION This report is about the financial knowledge of valuing the various securities and taking thedecisions in which project to invest so that investors are more attracted to invest in that company. Itcovers the valuation of bonds, preference shares, long term debts and ordinary shares with growth.This report also covers that company should invest in which project that gives the company higherprofits. While taking the decision in which project company should invest to maximize its profitstwo methods of measuring the projects has been taken i.e. Net Present Value and Pay Back Period.DISCUSSIONS/ WORKINGSClients Financial QuestionsEvaluating capital gain/ loss on the basis of constant or dividend growth modelConstant Dividend Growth Model is used to measure the fair value of an equity share.Intrinsic share price is the theoretical measurement of the share price. The intrinsic value of anequity share is calculated to compare the intrinsic share price with the current market price to knowthat whether they are overvalued or undervalued. Based on these comparisons, investors can decidewhether to purchase or sell the shares. Dividend Growth Model uses the dividends as a part of itscalculation while calculating intrinsic price of equity shares (Morden 2016). Every year growth isbeen added to every year's dividend and then the value is discounted by the weighted average costof capital. This is minimum requirement of the investor in order to take the decision that they haveto further invest in the company or not. The value of share is calculated as-P= D 1/(K-G) where, P= Intrinsic value price per share of the equityD= expected dividend per share one year from the present timeG= expected dividend growth rateK= required rate of returnThis model does not considers the capital investment as part of the determining the shareprice because it is only the part of the returns and share price cannot be calculated on the basis ofcapital investment. Dividend Growth model is the theoretical calculation of the share price whilecapital investment returns are real returns occurs for the investor. Presenting situation under which zero-coupon bond be selling at a premiumA zero coupon bond is a debt security on which investor does not pay any interest or couponamount and they are also traded at a deep discount rendering huge profits when they are redeemed
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