Money, Banking and Finance

Money banking and
finance

Contents
INTRODUCTION ..........................................................................................................................3
PART A...........................................................................................................................................3
I) Calculate the Net present value (NPV) of the project..............................................................3
II) Compute of Internal Rate of Return (IRR) for this project.....................................................4
III) Recommend the Manager regarding the project....................................................................5
PART B............................................................................................................................................5
Explain how Yield to Maturity is used to calculate the Yield Curve..........................................5
PART C............................................................................................................................................6
Analyse the statement 'Financial Intermediaries are vital to a well-functioning financial
system.'.........................................................................................................................................6
PART D...........................................................................................................................................9
Discussion related to the factors which determine the time-lag between the application of
instrument or tool of monetary policy and the achievement of the ultimate goal.......................9
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Finance refers to managing of funds and includes various activities such as borrowing,
saving, lending, forecasting and budgeting (Abbas, Iqbal, and Aziz, 2020). It basically includes 3
types of finance namely, personal, corporate and government/public. A business has to properly
manage the funds which are associated with the working of an organisation. Banking refers to
depositing and withdrawal of money. These also perform task of lending to the required ones and
also provides locker services to its customers. It is also a business activity which is conducted by
a bank. It performs of an agent between lenders and borrowers. The following report explains
about the Net Present Value and Internal Rate of Return. In the second part it explains about the
Yield to Maturity and YTM curve. In third it explains about the concept of financial
intermediaries and in the final part it reports the difference between application of instrument and
achievement of goals.
PART A
I) Calculate the Net present value (NPV) of the project.
Net present value is the value which is derived after discounting the future inflows with
the discounting factors to get the present value of future cash flows (Zhao, Chupradit, and
Khader, 2021). It is the present value which the firm will earn from the project if the firm
exercise the task. Following is the calculation of NPV of Livingstone Thompson Ltd:
Year Cash flow Discounting Factor Discounted cashflows
0 -30000000 - -
1 8000000 0.'869 6952000
2 8000000 0.'756 6048000
3 8000000 0.'657 5256000
4 8000000 0.'571 4568000
5 8000000 0.'497 3976000
6 14000000 0.'432 6048000
TOTAL 32848000

Net Existing Value = Existing value of cash Inflow – Cash Outflow
= 32848000 – 30000000
= 2,848,000
II) Compute of Internal Rate of Return (IRR) for this project.
Internal Rate of Return is a tool which is used in the financial analyses of profitability of
a future investment project. It is the point where the NPV of the both the discounting factor is
Zero. Following is the calculation of IRR using hit and trail method (Alami, 2019).
 Taking the discounting rate as 13%
Year Cashflow Discounting Factor Discounted cashflows
0 -30000000 1 -30000000
1 8000000 0.'885 7080000
2 8000000 0.'783 6264000
3 8000000 0.'693 5544000
4 8000000 0.'613 4904000
5 8000000 0.'543 4344000
6 14000000 0.'480 6720000
Net Present Value 4856000
 Taking the discounting rate as 20%
Year Cashflow Discounting Factor Discounted cashflows
0 -30000000 1 -30000000
1 8000000 0.'833 6664000
2 8000000 0.'694 5552000
3 8000000 0.'579 4632000
4 8000000 0.'482 3856000
5 8000000 0.'402 3216000