Principles of Finance - Study Material with Solved Assignments

Running head: PRINCIPLES OF FINANCE
Principles of Finance
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Name of the University:
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PRINCIPLES OF FINANCE
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Table of Contents
Question 1: Learning Outcomes 2..............................................................................................2
Agreeing or Disagreeing with the parent’s investment and concerns therewith:.......................2
Question 2: Learning Outcomes 5..............................................................................................2
Identifying and discussing Slarter & Gordons option to raise finance at this stage:.................2
Question 3: Learning Outcomes 4..............................................................................................3
Deciding which flows are relevant to take decisions for the go ahead with the new product
and explain the treatment of each:.............................................................................................3
Question 2: Learning Outcomes 3..............................................................................................3
a. Showing the cash flow of the business:..................................................................................3
b. Calculating the project net present value:..............................................................................4
c. Indicating whether NPV analysis is appropriate for evaluating a business proposal:............4
d. Identifying and discussing other methods of project evaluation and qualitative factors that
is taken into consideration:.........................................................................................................5
e. Indicating whether the business should be started:................................................................5
f.i Indicating how building for production will be used in the capital budgeting process:........5
f.ii Indicating how cost of borrowed funds will be used in the capital budgeting process:.......5
References:.................................................................................................................................7

PRINCIPLES OF FINANCE
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Question 1: Learning Outcomes 2
Agreeing or Disagreeing with the parent’s investment and concerns therewith:
The decision made by the parents regarding the investment in ‘risk-free’ 10-year
Commonwealth Government bonds is adequate, where investment is secure and adequate
returns will be provided by the bonds after the completion of the tenure. However, full
agreement is on the choice of bonds used for investment purposes, while disagreement is on
the risk concern for the bond. Being a ‘risk-free’ 10-year Commonwealth Government bond,
the investment will be having zero risk involved in investment, while the return will be
constant, where no abnormal returns could be generated from the investment. Hence,
investment of superannuation fund in ‘risk-free’ 10-year Commonwealth Government bond
will eventually account for the inflation and provide adequate retune in future (Cummings
2016).
Question 2: Learning Outcomes 5
Identifying and discussing Slarter & Gordons option to raise finance at this stage:
Slarter & Gordons has the option of raising the required finance with the help of
equity issue or bond issue. Both the measure would eventually allow the organisation to
acquire the required level of funding for their current business requirement. The use of share
issue would eventually raise the level of shares in the market deriving the per share valuation
of the organisation. Furthermore, the use of debt issue can also be conducted, where the
company needs to pay finance cost for the bonds issued to the investors. Both the measures
could eventually allow the organisation to acquire the required level of cash for smoothly
conducting their operations (Legg and Nehme 2016).