What are the main sources of such capital, and how evolving are these sources?
How does the issue of debt (if any) /bank loan affect the firm’s coverage ratio?
How company’s investments in tangible vs. intangible assets are changing?
The efficiency of investment – contribution to the cash flow stream, profitability, and market performance and announcement effect (if any) of such investment decision.Does current practices help the firm in solving
agency problem?
Corporate Finance
Calculate the Net Present Value (NPV) for each project
a) State the NPV decision rule
b) Based on the NPV decision rule, select the projects that should be financed with the £1,320,000 budget
c) Calculate the overall NPV for the selected projects in part b)
(Total: 25 marks)
2) Calculate the Profitability Index (PI) for each project
a) Use the calculation in part 2) to rank the projects from the most preferred to the least preferred
b) Explain the PI decision rule
c) Based on the PI decision rule select which of the projects should be financed with the £1,320,000 budget
d) Calculate the overall NPV for the selected projects in part c)
(Total: 25 marks)
3) Calculate the Internal rate of return of (i) Project 1, which has an initial cost of £800,000 and an annual cash inflow of £117,200 for 20 years; and (ii) Project 2, which has an initial cost of £200,000 and an annual cash inflow of £48,000 for 8 years. All the cashflows are in annuity.
Given that AZAR plc. operates a 14% minimum required rate of return policy, based on your IRR analysis, advice on which of the projects should be accepted or rejected.
(Total: 25 marks)
4) Comment on the importance of investment appraisal and explain the advantages and disadvantages for each of the following investment appraisal techniques
I. Net Present Value
II. Internal rate of return
III. Profitability index
IV. Modified internal rate of return
