Finance for Business: Corporate Ethics, Investment Analysis, Dusk Ltd

This report addresses key aspects of finance for business, starting with an analysis of the corporate ethics failure of One.Tel, including prevention strategies and lessons learned. It then delves into financial calculations such as present value and future value of cash flows, and effective annual rates. A comparative analysis of two models for Asian Fusion Restaurant is conducted, advising on the best model based on cash outflow. The report further evaluates an investment project for ElectroTech Ltd, calculating Net Present Value (NPV) and Internal Rate of Return (IRR), ultimately recommending rejection of the project based on financial results. Finally, the report discusses advantages and disadvantages of private equity financing and explores alternative sources of finance, along with calculating the weighted average cost of capital for Dusk Ltd. Desklib provides students with access to similar solved assignments and past papers.

FINANCE FOR BUSINESS

Table of Contents
Question 1........................................................................................................................................3
1)One. Tel limited failed in corporate ethics:..............................................................................3
2)How could it have been prevented by management:................................................................3
3) Lessons learnt and business implication for business commodity:.........................................4
(i) Present Value of Cash Flows..................................................................................................4
(ii) Future Value of Cash Flows...................................................................................................5
(iii) Effective annual rate.............................................................................................................5
Question 3........................................................................................................................................5
(a) Best Model selection..............................................................................................................5
(b).................................................................................................................................................7
(i) Calculation of Net Present Value and Internal Rate of Return of EletroTech Ltd Equipment
......................................................................................................................................................7
(ii) Recommendation...................................................................................................................9
(iii) Factors affecting investment decision...................................................................................9
Question 4........................................................................................................................................9
(a).................................................................................................................................................9
(b)...............................................................................................................................................10
(c)...............................................................................................................................................10
(d)...............................................................................................................................................11
(e) Weighted average cost of capital of Dusk Ltd.....................................................................11
Question 5......................................................................................................................................11
(a)...............................................................................................................................................11
(b)...............................................................................................................................................12
...................................................................................................................................................13
REFERENCES................................................................................................................................1

Question 1
1)One. Tel limited failed in corporate ethics:
One. Tel company is an Australian based telecommunications company. The company
are private limited company which offers the landlines phones, mobile phones and internet
services as well as provides residential and commercial telecommunication services and it is a
market leader in providing network solutions for businesses of all sizes or network solution
provider in the alarm industry. The company was very people focused and focused on market as
corporate business. It was the fourth largest telecommunication company in Australia which had
more than two million customers and operates in eight countries. It was a major corporate
collapse in Australia. One. Tel collapse is a classic case which failed in expectation, strategic
mistakes, wrong pricing policy and its unbridled growth. From various studies, One. Tel
company is failed to manage the corporate ethics in the workplace. Australian computer society
code in the light of the information technologies which is employed by the Australian
telecommunication company One. Tel limited (Chitehwe, 2019). The company was seen failure
in information system, in particular failed in the billing system. This case arise issues of
professional behaviour and ethics of information technology personnel and management at One.
Tel limited.
2)How could it have been prevented by management:
Business ethics can place current technology challenges and it has every thing to do with
management So, Managers must acknowledge their role before shaping business ethics. There
was a lack of diversity of opinions in the board and management does not make full discloser to
the board about the management performance of the firm so, their must be discloser about the
business performance and clearly defined responsibilities between the board and the
management which are vital for effective corporate governance. Non- executive board member
should make their own enquiries into firm strategies and performance thus, non-executive
member should have middle and lower management to ensure transparency of information as
well as large investors in firm must be take active interest in managing the firm. Executives who
ignore the business ethics can run the arise of management and corporate liability in strong legal
environment (Mubaraq and Abdulrasaq, 2019). One. Tel company must relive their new ethics
with new guidelines which helps to recognize the guidelines of organization and managerial root.

3) Lessons learnt and business implication for business commodity:
The ethical implication of technology focus on the ways that creative morale and ethical
principles. One. Tel limited technologies studies offers a robust vocabulary for describing where
ethics intersect with technology agency. In the case study of collapse of One. Tel shock to
corporate world while demonstrate that weaknesses in governance practice in relation to control
management system, audit quality, and financial reporting quality so, it has to understand their
business history in terms of the business models, growth, strategies is important for identifying
antecedents to its collapse. Company should work in concert with humans. They must explore
ethics in the classification of future technologies, maintain the ethics relationships between firms
and worker, ethics between firms and other firms and as well as ethical governance of
technology must use with in the organization. One .Tel marketing and advertising campaigns
created an impression that the company was targeting the back packaging community which
helps to sign up new customers which accelerate sales and growth of customers. One. Tel
collapse leave several lessons on corporate strategies, firstly it is not enough to acquire
customers in large scale unless customers must be contributed towards profitable of the firm.
Secondly, sales generation are not enough unless revenues are collected into cash timely and
third, high competitive price only gain the market share which can disastrous consequences.
Question 2
(i) Present Value of Cash Flows
Present Value of Cash flow (in case of even cash flow) = Cash Flows * Annuity factor
Present Value of Cash Flow
Annual Interest Rate 9.24%
Semi-annually interest rate 4.62
Total period (years) 25
Cash flows 100000
Annuity Factor 19.38235
Present value of Cash flow ($1,938,234.63)

On the basis of above computation, it is identified that the present value of cash flow of $100000
for every six months is $1938234.63. This is computed by converting annual interest to semi-
annually interest rate.
(ii) Future Value of Cash Flows
Future Value of Cash Flows = PV* [(1 + r) ^n]
Future Value of Cash Flow
Present Value 100000
Interest Rate 9.24%
Term (years) 25
Compounding period per year 2
Future value of Cash flows $956,611.91
On the basis of above calculation, it is identified that the future value of cash flows is
$956,611.91 after compounding the it with 2 times in a period.
(iii) Effective annual rate
Effective Annual Rate = (1+rm) m−1
Effective Annual rate
Frequency Periods Annual Rate
Effective Annual
Rate
Semi Annually 2 9.24% 9.4534%
i=(1+rm) m−1i=(1+rm) m−1
i= (1+0.09242)2−1i= (1+0.09242)2−1
i=0.094534i=0.094534
I=i×100=9.4534%

Question 3
(a) Best Model selection
Model 1
The initial cost of Model 1 will be $50000
Expected useful life = 8 years
Annual Maintenance cost = $1500 per year
Years Cash Outflow Discounting
factors @ 8%
Present Value of cash
outflow
0 50000 1 50000
1 1500 0.92593 1388.88889
2 1500 0.85734 1286.00823
3 1500 0.79383 1190.74836
4 1500 0.73503 1102.54478
5 1500 0.68058 1020.8748
6 1500 0.63017 945.25444
7 1500 0.58349 875.235593
8 1500 0.54027 810.403327
Total 58619.9584
Model 2
The initial cost of Model 2 will be $55000
Expected useful life = 11 years
Annual Maintenance cost = $1000 per year
Years Cash Outflow Discounting
factors @ 8%
Present Value of cash
outflow
0 55000 1 55000
1 1000 0.92593 925.925926
2 1000 0.85734 857.33882

3 1000 0.79383 793.832241
4 1000 0.73503 735.029853
5 1000 0.68058 680.583197
6 1000 0.63017 630.169627
7 1000 0.58349 583.490395
8 1000 0.54027 540.268885
9 1000 0.50025 500.248967
10 1000 0.46319 463.193488
11 1000 0.42888 428.882859
Total 62138.9643
Result: On the basis of above result of both the model and after analysing the both model
initial outlay and ongoing annual expenses, it is identified that the present value of cash outflow
of first model is $58619.9584 and second model is $62138.9643. This means that the present
value of cash outflow of first model is lower than as compared to second model so on this basis it
is advisable to Asian Fusion Restaurant that they should buy Model 1. It is because the intial cost
of model 1 is lower than the initial cost of Model 2 and also the present value of ongoing
expenses is also lower in case of Model 1. Thus, on the basis of initial outlay and annual
maintenance expenses, it is advisable to Restaurant that they should buy Model 1 emission and
save environment (Ahlström, 2019).
(b)
(i) Calculation of Net Present Value and Internal Rate of Return of EletroTech Ltd Equipment
Initial Cost of Project
Purchasing Cost $1,200,000
Consultancy and R&D cost 80000*
Useful Life of Project 6 years
Annual Cash inflow (Sales) $400000 p.a.
Expenses $100000 p.a.
Other cash expenses $20000 p.a.
Scrap value of project at the end of sixth $100,000

year
Annual Depreciation (1200000 – 100000) /
6 $183333
Tax Rate 30%
Cost of Capital 12%
*Notes: It is assumed that the company capitalize its consultancy and research & development
cost in the asset rather than recording it on profit and loss account. Thus, it is not considering for
the purpose of tax computation.
Net Present Value:
Net Present Value
Years
Cash
Inflow
(Sales
and
last
year
Scrap
value)
(a)
Cash
Outflows
(initial cost,
expenses,
annual
depreciation
and other
cash
expenses)
(b)
Tax
cost
@
30%
©
Net Cash
flow (d)
= (a) -
(b) - ©
Depreciatio
n [e]
Net Cash
flow before
depreciation
but after tax
(f) = (d) +
[e]
Discoun
ting
Factor
@ 12%
Present value of
Cash flow
0 128000
0 0 -1280000 -1280000 1 -1280000
1 400000 303333 29000.1 67666.9 183333 250999.9 0.8929 224107.0536
2 400000 303333 29000.1 67666.9 183333 250999.9 0.7972 200095.5835
3 400000 303333 29000.1 67666.9 183333 250999.9 0.7118 178656.771
4 400000 303333 29000.1 67666.9 183333 250999.9 0.6355 159514.9741
5 400000 303334 28999.8 67666.2 183333 251000.2 0.5674 142424.2543
6 500000 303334 58999.8 137666.2 183333 321000.2 0.5066 162628.6912
Net
Present
Value Present Value of Cash outflow - Present Value of Cash Inflow -212573

Internal Rate of Return:
Internal Rate of Return
Year
Net Cash
Flow
Discounting
Factor @ 12%
Present value of
Cash flow
Discounting
Factor @ 5%
Present value of
Cash flow
0 -1280000 1 -1280000 1 -1280000
1 250999.9 0.8929 224107.05 0.9524 239047.524
2 250999.9 0.7972 200095.58 0.9070 227664.308
3 250999.9 0.7118 178656.77 0.8638 216823.151
4 250999.9 0.6355 159514.97 0.8227 206498.239
5 251000.2 0.5674 142424.25 0.7835 196665.224
6 321000.2 0.5066 162628.69 0.7462 239535.292
-212573 46234
Formula of Internal Rate of Return =
ra = lower discount rate chosen = 5%
rb = Higher discount rate Chosen = 12%
Na = NPV at ra = 46234
Nb = NPV at rb = -212573
= 5% + [46234 / (46234 – - 212573)] * (12% – 5%)
= 5% + [46234 / 258807] * 7%
= 5% + 0.18 * 7%
= 5% + 1.26%
= 6.26%
(ii) Recommendation
On the basis of above NPV and IRR calculation, it is identified that the net present value of
equipment is negative and internal rate of return of equipment is below cost of acquisition (Billio

and Varotto, 2020). So, on this basis it can be analyzed that the ElectroTech Ltd should reject
this project as they unable higher profit return that the cost of acquisition.
(iii) Factors affecting investment decision
 Beside return on investment, the risk is also need to be taken into consideration while
making investment related decision.
 The period of investment and inflation rate is also need to be consider while making
business decision.
 Further, investment volatility factor and liquidity position is also plays vital role in
identifying whether the project is profitable or not.
 The change in the internal as well as external business environment is also one of the
factor that should be consider by the company before making any decision (Falchetta and
et.al., 2022).
Question 4
(a)
Advantage of Private Equity financing:
 The private equity source of finance adds working capital to the business as it can
provide cash infusion that is best for supporting new and struggling business.
 Another advantage of private equity is such that the valuation of private equity is not
affected by the public market and they also need not to move through high-interest loans.
 The private equity financing allows more freedom for the growth of the business which
ultimately leads to higher profitability and expansion.
Disadvantages of Private Equity:
 It requires upfront funding and also sometime returns are often smaller and less likely to
cover the all project cost.
 Acquiring funds from the private equity is lengthy process which ultimately leads to
delay in the targets achievement for which funds are acquired from private equity option.
 The private equity may affect the business decision-making process as they are providing
and handing over their shares and part of their control (Falchetta and et.al., 2022).

(b)
Beside private equity, debentures is an alternative source of finance that can be adopted by
the company in order raise the funds. Financing through debt is less costly and provides tax
benefits while on the other hand, debt financing is a rigid obligation that enlarge the leverage
ratio. It is because whether the company will earn profit or not, they need to pay fixed interest to
its business. For example, Woolworths is an Australian company that raise debt capital of $607.8
million from JB Hi-Fi JBH:AU and $1.36 billion from Metcash MTS:AU (Pallathadka and et.al.,
2021).
(c)
Alpha Ltd can borrow loan at the prime rate while on the other hand, Beta Ltd, can borrow loan
at prime rate + 4. As the current prime rate is 4.75% so the respective loan of Alpha and Beta are
as follows:
Alpha respective loan rate = 4.75%
Beta respective loan rate = 4.75% + 4 = 4.0475%
(d)
The introduction of tax decreases the value of business it is because due to tax expenses,
the cost of sales of the company increases which ultimately result into the less income of the
business. Thus, it can be said that the introduction of tax should decrease the value of business.
(e) Weighted average cost of capital of Dusk Ltd.
Particulars
Amount
($ In
million) Weights
Cost of
Capital
(after
tax
rate)
Weighted
average
cost of
capital
Debt
Outstanding 25 0.625 8.51 5.31875
Equity
Outstanding 15 0.375 12.00 4.5

40 1 9.82
Cost of debt after tax = 8.25/ (1-0.03) = 8.51%
Question 5
(a)
On the basis of above chart, it can be stated that the dividend policy adopted by
CryptoKnight Ltd under its investigation period is residual dividend policy. The residual
dividend policy state that companies pays dividend to its shareholders on the basis of amount of
profit are left over after the company has paid for its capital expenditure and working capital
costs. After analyzing the above chart regarding earning per share and dividend per share, it is
identified that the company has distributed 50% of its earning towards the shareholders in the
form of dividend (Boubaker and Nguyen, 2018). The company has employed this particular
policy in order to keep their employee satisfied and happy. Further, it is also helpful for
convincing the shareholders to reinvest the earning or returns again in the company for the future
development of the business.
(b)
Clientele Effect Theory: As per these theory, the change in distribution policy and
incorporating regular cash dividend may result into the loss of some clientele which will chose to
sell their stocks and attract new clientele who will buy stock based on the dividend preferences
(Sari, 2018). Thus, as per this theory, the company should change its dividend distribution policy
and not pay regular cash dividend as it may lead to gain of clientele who purchase stocks based
on dividend preferences.
Dividend Signalling Theory: This theory indicates that the announcement of company’s
change in distribution policy and paying regular dividend payment is an indicator of positive
future prospects. This theory also beliefs that the information available on the company’s
financial health is basically not available to all parties in a market at the same point of time. So,
as per this theory, it is advisable to IT sector of CryptoMax Ltd (Jaara, Alashhab and Jaara,
2018). That they should change its distribution policy and pay a regular cash dividend

REFERENCES
Books and journals
Ahlström, H., 2019. Policy hotspots for sustainability: Changes in the EU regulation of
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Billio, M. and Varotto, S., 2020. A New World Post COVID-19: Lessons for Business, the
Finance Industry and Policy Makers. Venezia Edizioni Ca’Foscari-Digital Publishing.
Falchetta, G. and et.al., 2022. Harnessing finance for a new era of decentralised electricity
access: A review of private investment patterns and emerging business models. Energy
Research & Social Science. 90. p.102587.
Pallathadka, H. and et.al., 2021. Applications of artificial intelligence in business management,
e-commerce and finance. Materials Today: Proceedings.
Boubaker, S. and Nguyen, D. K., 2018. Governance issues in business and finance in the wake of
the global financial crisis. Journal of Management & Governance. 22(1). pp.1-5.
Sari, P. B., 2018. DETERMINAN CLIENTELE EFFECT THEORY DAN SIGNALING
THEORY DALAM MEMPREDIKSI DIVIDEN (STUDI PADA PERUSAHAAN
OTOMOTIF DAN KOMPONENNYA YANG TERDAFTAR DI BURSA EFEK
INDONESIA). Jurnal Akuntansi Bisnis dan Publik. 8(2). pp.158-176.
Jaara, B., Alashhab, H. and Jaara, O. O., 2018. The determinants of dividend policy for non-
financial companies in Jordan. International Journal of Economics and Financial
Issues. 8(2). p.198.
Chitehwe, G., 2019. The impact of employee engagement on organizational performance: a case
of Tel One Private Limited, Head Office Harare (Doctoral dissertation, BUSE).
Mubaraq, S., Abdulrasaq, M. and Saidu, M., 2019. Ethical Accounting Practices and Financial
Reporting Quality: Evidence from Listed Firms in Nigeria. International Accounting
and Taxation Research Group, Faculty of Management Sciences, University of Benin,
Benin City, Nigeria. 3(2). pp.97-110.
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