Financial Analysis and Capital Budgeting
Added on 2020-01-07
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FINANCIALMANAGEMENT03
Table of ContentsINTRODUCTION...........................................................................................................................3Question 1........................................................................................................................................3a)..................................................................................................................................................3b) Capital asset pricing model......................................................................................................3Evaluation of different securities using CAPM model................................................................3Draw security market line graph by plotting various securities..................................................4QUESTION 2...................................................................................................................................5a) Time value of money and deferred perpetuity.........................................................................51. Present value of constant income flows at the beginning of the sixth year.............................52. Present value now of the whole income stream.......................................................................5QUESTION 3...................................................................................................................................5a) Annual equivalent costs...........................................................................................................51. Calculate annual equivalent costs of each plan........................................................................52. Recommends the best suitable plan based on above calculations...........................................6QUESTION 4...................................................................................................................................6a) Calculate NPV in terms of proposed purchase and resultant incremental cash flow..............6b) Recommend company to purchase the new technology or not...............................................8CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................903
INTRODUCTIONManagement is finance is regarded as one of the important aspect as this will help anentity in order to improve their existing business conditions. This project has emphasized onvarious financial aspects of the firms which facilitate an enterprise in eliminating all kinds ofexternal market obligations imposed on the business. This report is all about various capitalbudgeting technique to be used in evaluating various business projects. Bond valuations will beconsidered as most important aspects that increases the existing returns gained by an individual.Certainty model will be used in this assignment to ascertain the actual mount of net profit inrelation to all the expected costs incurred in the business in the near future. The security marketline graph used by the firm is to evaluate all the securities included in the business portfolio inorder utilizing all their strengths in right place. Skills and the capabilities of the firms will getincreases with the passage of time as capital asset pricing model will be used by the firm indetermining required rate of return which will be compared wit the expected rate of return inorder to comment upon the actual results. Time value concept and deferred perpetuties are usedin the given assignment to analyses the existing performance of the business in relation to theexternal market as every business wants to secure specific portion of financial resources in orderto safeguard their future. Protection of income is essential for the business in eliminating externalmarket obligations that may affect an entity's existing performance as this will be managed in thebest possible manner.QUESTION 1a)b) Capital asset pricing modelEvaluation of different securities using CAPM modelCompany nameRisk free returnMarket riskBetaRequired rate ofreturn(rf+(rm-rf)*bPrawn Ltd6%8%0.5(6%+(8%)*0.510%Salmon Ltd6%8%0.8(6%+(8%)*0.812.4%Shark Ltd6%8%1.2(6%+(8%)*1.203
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