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Impact of Electricity Tariffs on Capital Budgeting Decision

   

Added on  2019-11-12

33 Pages6163 Words284 ViewsType: 284
Finance
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RUNNING HEAD: Venture capital analysis 1Name of the student-Title-Venture capital analysisUniversity name-
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Venture capital analysis 2Table of Contents1.Introduction................................................................................................................42.Literature review........................................................................................................52.1 Project economic analysis..........................................................................................52.2 Capital and budgeting process...................................................................................72.4 Source of funds..........................................................................................................8Weighted average cost of capital.....................................................................................9Leasing decisions.............................................................................................................9Capital allocation process................................................................................................93 Development of methodologies......................................................................................10Choice of capital sources...................................................................................................12Conclusion.........................................................................................................................12Part-B.................................................................................................................................13Methodologies and development of financial models for smart home constructions.......13Assumption of financial analysis for smart home construction.........................................14Constraints of financial analysis for smart home constructions........................................14Risk analysis......................................................................................................................15Preparation of Sales budget...............................................................................................15Projected Material cost......................................................................................................16Overhead Budget...............................................................................................................17
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Venture capital analysis 3Projected Administration cost............................................................................................17Project income Statement..................................................................................................18Projected cash flow statement...........................................................................................20New Weighted Average Cost for Project A......................................................................22New Weighted Average Cost for Project B:-....................................................................22New Weighted Average Cost for Project B:-....................................................................23Cash flow statement...........................................................................................................24Part-3..................................................................................................................................26Conditions of loan finance.................................................................................................26Eligibility criteria of financing the loan in Smart home constructions..............................26Documentation for Smart home constructions for financing process...............................27Equity finance....................................................................................................................29Financial risk.....................................................................................................................29References..........................................................................................................................31
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Venture capital analysis 41.Introduction `With the increasing ramified economic changes and complexity of finance, eachand every organization are using project economic and using systematic and rationalapproach for analysing the different alternatives available for a project. This approachwill help investors to evaluate particular project and select the one project out of thegiven level of projects by using various financial tools such as capital budgeting, IRR andNPV. In this paper, various parts have been described on the use of financial tools andhow investors could use this information’s to make effective investment decisions. In thestarting of this paper literature review has been given. Afterward, research methodologiesand key factors of financial tools such as NPV, cash flow statement analysis and IRRhave been described in research methodologies part, in the end conditions of loans andbifurcations of the same have been described in determined approach.
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Venture capital analysis 52.Literature review As per the perception of Arbabi, et al. 2017 it is evaluated that capital budgeting is thefinancial tools which are deployed by investors to evaluate which investment options would givebetter return for their investment. There are several tools to gauge the investment return such asuse of NPV, IRR, project economic analysis, cash flow statement analysis and weighted averagecost of capital, allocation of resources.2.1 Project economic analysis It is the analysis which helps investors to assess the sustainability of the project and alsoassist in enhancing the sustainability and effectiveness of the project selected. This projecteconomic analysis is accompanied with the following steps which are given as below.Step-1 Collection of relevant information In this step, all the required information such as interest rate, project investment initialamount, annual cost and installment and net present value of investment are collected. It isconsidered that if investors could collect this information then it would increase the overalleffectivenessStep-2Recognition and define feasible alternatives
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Venture capital analysis 6There are several feasible alternatives which should be accepted by organization to makeeffective use of resource. It is considered that investors should undertake the best possibleoptions which could give high amount of return to investors. Step-3Cash flow and other estimatesThis step will provide the clear about the amount of cash which investor would get fromthe invested amount. It is observed that investors would select the investment project whichgives the highest net present value to investors.Step-4Measure of worth criteria It is evaluated that company should evaluate all the associated factors and associatedbusiness options which investors should evaluate to measure the business activities. Step-5Engineering economic analysisIn this step time value of the invested amount is computed buying proper present valuefactors. This present value factors are based on various economic factors such as budget,purchasing power of investors and potential earning capacity. This analysis reflects that if money
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Venture capital analysis 7is collected earlier than the expected time then it will have higher return as compared to futurevalue.Step-6Best alternative selectionThis step reflects the various use of financial tools such as Net present value, economicanalysis, Internal rate of return, Attractive Rate of Return (MARR), Benefit/Cost Ratio (B/C),Future Worth average rate of return, profitability return and other options. With the help of theseavailable options, investors could evaluate the best possible options which could be undertakenby the investors while selecting the best investment option from the alternatives. Step-7Implementation and monitoringThis step is accompanied with the use of these resources which could be undertaken bythe investors to evaluate the investment decisions. This step is related to using best possiblecourse of actions to identify the possible negative outcomes in the selected investment options(Arbabi, et al. 2017).2.2 Capital and budgeting process Capital finance and allocationIt is the part of the capital budgeting process in which all the funds will be invested in thedifferent parts with a view to create value in the investment. Capital financing is related to
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Venture capital analysis 8raising funds from the different sources and at the same time considering the cost of capitalassociated with the same. Capital could be raised from internal and external sources. However,internal source of funds are ideally cheaper than the external sources of funds. Allocation ofcapital in different parts of investment options is accompanied by planning, evaluating andimplementing financial policies for the betterment of organization. 2.4 Source of funds There are several sources of funds which could be used by company or investors to raisefinance from the market. However, company mostly uses debt capital and equity capital funding.Debt capital As stated by Jenkinson et al. 2016, it is the amount of capital which includes borrowedfunds or long term and short term debts. Company could raise debt capital by taking loans andadvances from banks and financial institutions. Nonetheless, if company fails to pay interestamount or debt amount on the due date then these banks and financial institution may takecompany in the liquidation and winding up process. Debt capital has high risk but it is availableto the investors at really low cost. The amount of interest is charge on the company which isdeducted from the profit and loss account and reduces the tax payment of company.Equity capital As per the views of Rossi, 2014 it is reflected that it is accompanied with reserve,surplus, net profit and share capital issued by company in market. However, retained earningsand profit earned by company is internal source of finance which is used by investors andcompany to raise funds at very cheap rate. In this case, company plug back its capital in
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