Examining the principles of the net present value - Free Essay Example

Sample details Pages: 7 Words: 1965 Downloads: 2 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? In this essay I would be elaborating on the principles of the Net Present Value and its advantages. Also writing about Internal Rate of Returns and comparing the two methods and analyzing it. When making and investment with regards to capital fixed assets such as plant and equipment the decisions are important given the significance of the capital outlay involved. In this essay we will be talking about two of the main methods which involves discounted cash flow methods Don’t waste time! Our writers will create an original "Examining the principles of the net present value" essay for you Create order Net present value method ( NPV) Internal rate of return (IRR) However when it comes to these two methods the cash flow and the time value of money place a very important role Cash flow Cash flow is essentially the movement of money into and out of your business; its the cycle of cash inflows and cash outflows that determine your business solvency[1]when it comes to decision making you take into consideration the incremental cash flow ( cash flows that occurs directly as a consequence of taking on the project). This will depend on the prospect of the investment. Example Opportunity cost, Taxes, depreciation Time value of money Its the amount of interest receive for a given amount of money over the amount of time. Invest look for the best return that they could get in the fastest time as possible, therefore when making an investment this concept is very important, Net Present Value NPV is the method of discounting future streams of income using an expected rate of return to evaluate the current value of expected earnings. It calculates future value in todays money. NPV may be used to determine the current value of a business being offered for sale or capitalized.[2] NPV in project finance could be defined as the sum of present values (PVs) of cash flows expected from the project minus initial investment made. The formula for calculating NPV could be written as: frac{R_t}{(1+i)^{t}} Rt -net cash flow occurs at the end of each period 1 i Discount rate used to Discount the cash flow (DCF) t- Time period of the project There are two kinds of NPV Project NPV The cash flow used to calculate the NPV would be the future operational cash flows of the project less initial project capital costs Equity NPV The cash flow used to calculate the NPV would be the equity distributions minus initial equity investment However finance models are often presented in more detailed during construction period as opposed to during operations. For example we often find many project finance models have monthly calculations during construction and perhaps semi-annual / annual during operations. We might want to use XNPV instead of NPV, as returns the net present value for a schedule of cash flows that is not necessarily periodic. Discounted Factor in NPV A discounted cash flow (DCF) is the most fundamentally correct way of valuing an investment.[3] There are some basic information that should be needed for this valuating approach; Life of the Asset The Cash flow during the time period of the Asset The discount rate ( ex : the rate of interest) to apply to these cash flows to get the present value The rate used to discount future cash flows to their present values is an important variable when it comes to finance and calculating NPV, some of the important once are ;  Ãƒâ€¦Ã‚ ¸Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚  Weighted average cost of capital (WACC)  Ãƒâ€¦Ã‚ ¸Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚  Reinvestment rate  Ãƒâ€¦Ã‚ ¸Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚  Target rate of return WACC A calculation of a firms cost of capital in which each category of capital is proportionately Weighted[4], Common stock, bonds, preferred stock and other long term liabilities are included. When finding WACC as an increase in WACC notes a decrease in valuation and a higher risk. However some may say its appropriate use higher discount rates to adjust for risk of Riskier projects. The WACC equation  is the cost of each capital component  multiplied by its proportional weight and then summing[5] Weighted Average Cost Of Capital (WACC) Where: Re = cost of equity Rd = cost of debt E = market value of the firms equity D =  market value of the firms debt V = E + D E/V = percentage of financing that is equity D/V = percentage of financing that is debt Tc =  corporate tax rate a companys assets are financed by either debt or equity. WACC is the average of the costs of these financing sources, By taking a weighted average we can identify how much interest the company has to pay for every amount it finances. This is the overall required return on the firm as a whole and determines economic feasibility of an expansion opportunities and mergers. It is a good discount rate to use for cash flows with risk that is similar to that of the firm. Reinvestment rate This can be defined as the rate of investment from a firm on average, when analyzing projects in a capital constrained environment its more appropriate to use Reinvestment rate than WACC as the discounting rate. This is often calculated by considering the return on an alternative investment that can be made if the current project is not taken. Target Rate of Return A method of pricing that estimates the desired return on investment to be achieved from the fixed and working capital investment and includes that return in the price of a product/service[6]this is used my monopolists or market leader The general outcome of the NPV is without paying taxes the maximum amount that a firm could pay for the opportunity of keeping the investment without making a deficit. NPV = Present Value Benefits Present Value Cost This could be easily modelled in a one shot occurrence project, however when it comes to mutually exclusive projects with unequal lives the theory may have to be altered. Mutually exclusive projects with unequal lives When comparing two mutually exclusive alternatives with significant different lives, The Net Present Value does not give the correct answer, therefore adjustments to the model is important. First thing when dealing with projects of this nature we need to find out if the project can be repeated and if so we must take this into accounts when estimating the projects profitability. The example that I have taken is from Greg MacKinnon, Sobey School of Business, Saint Marys University. In his example he has two brands of the same machine where Brand A costs more but lasts longer than Brand B. Example: Machine A costs $10,000 and increases profits by $5000 per year. The machine lasts for six years (at which time it breaks down and is no longer usable). Machine B costs $5500 and increases profits by $5000 per year. This machine is expected to last for 3 years. Assume that the discount rate is 10%. 7 According to the above calculations Machine A has the best Net Present Value and therefore ideally the best option would be to choose machine A. If this project had no repetition and was a one shot deal Machine A would be the correct option, however machines have to be replaced due to wear and tear and depreciation. To overcome this matter and to make the best deal there are two methods to compare these alternatives Matching Cycles or Replacement Chain ( Common life) Approach This is method of comparing projects of unequal lives that assumes that each project can be repeated as many times as necessary to reach a common life span; the NPVs over this life span are then compared, and the project with the higher common life NPV is chosen. find a common multiple of the two life lengths use this as the total project length for both alternatives, where each alternative is repeated the necessary number of times calculate NPV for both over this common time frame and choose the best alternative[8] if we take the previous example of Machine A and B six years is a common multiple of its lives. For Machine A, NPVA=11776.31 over six years. For Machine B, the cash flows over six years are: Year: 0 1 2 3 4 5 6 -5500 5000 5000 5000 -5500 5000 5000 5000 these cash flows are equivalent to: Year: 0 1 2 3 4 5 6 6934.26 6934.26 9 With the comparisons made with the matching cycles method Machine B is better than Machine A. 2) Equivalent Annual Cost (EAC) or Uniform Annuity Series (UAS) A method which calculates the annual payments a project would provide if it were an annuity.[10]When comparing a project of unequal lives the one with the higher annuity rate should be chosen EAC and UAS are the same. One term (EAC) is used when referring to problems of minimizing costs and the other term (UAS) is used when referring to problems of maximizing returns.[11] We know that Net Present Value of Machine A is 11776.31 and it lasts for six years. Therefore we are setting this model for six years annuity. 12 What this means is that the amount that you will receive per annum through the investment of Machine A will be 2703.93. Similarly a three year annuity for Machine B 13 Both methods would give the same decision as to which Machine is the better option to choose. These methods are valid only if it is reasonable to assume that the machines will be replaced as they wear out and tear. Internal Rate of Return (IRR) IRR is the rate at which the project NPV equals 0. It also provides the expected return rate of the project, assuming certain conditions are met.[14]Higher the rate of return more the investment looks promising. If all other factors are equal when comparing a project since Internal Rate of Return is a rate of quantity it indicates the efficiency, quality or the yield of an investment this is contrast to the NPV where it looks at the value or magnitude of the company. There are three ways of determining a project using IRR Graphically Using table of annuity factors Trial Error ( the most common one) When calculating IRR the most important thing is that all details should be equivalent to one particular period Calculating IRR Using Tables of Annuity Example A company is investing in a new machine costing 104,320. The current annual cash flow of the company is 20,000 per year in operating cost over the machine life of 10years. What is the IRR of the project? To find this we need to get the factor of IRR, afterwards we check it using the annuity table to find out the percentage Factor of IRR = 5.216 = The factor of 5.216 corresponds to the rate of return of 14% Trial and Error Method Take a discount rate and check the NPV. If its a positive answer recalculate at a higher rate till you get a negative NPV and then interpolate the two rates. Comparisons of NPV and IRR When it comes to mutually exclusive projects using IRR would not be the best method because it could rank it incorrectly. IRR NPV Project A 24% 1540 Project B 18% 1730 According to IRR method you should choose Project A but Project B has a higher NPV. Calculating IRR is hard since it may involve solving of a polynomial. More often than not the Trial Error method is use for calculation. IRR believes internal Cash flows are reinvested at the same rate, therefore it should not be used to compare projects of different durations, NPV assumes more realistic that they are reinvested according do debt and equity. Projects with mixtures of positive and negative cash flows can result in multiple IRRs, therefore its hard to find out which one is right or wrong Despite the positivity of NPV, executives prefer IRR because of its easier to compare in percentages than in currencies.

Religious Unrest in Nigeria - 9418 Words

Table of contents Dedication †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. ..i Preface †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.......ii Acknowledgement †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦iii Table of contents †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦..IV Topic: religious unrest in Nigeria, causes and effects. Chapter 1 1.1 Definitions of religion. 1.2 Types of religion. 1.3 Types of religion and religious unrest in Nigeria. Chapter 2 2.1 causes of religious unrest 2.2 belief strategy 2.3 doctrine postulation Chapter 3 3.1 factors affecting religious†¦show more content†¦Finally i appreciate with felicity, the felicitation and aids of friends whose names are not written in this book but are always in my heart. However errors of omission and commission remain entirely mine. Chapter 1 Introduction 1.1 Definition of religion Religion adds meaning and purpose to the lives of followers, granting them an appreciation of the past, an understanding of the present, and hope for the future Religion is a belief system concerning one or more deities and incorporating rituals, ceremonies, ethical guidelines, and life philosophies. it is also a belief of some superhuman power or powers, in particular a god or gods, which usually involve obedience, reverence, and worship; and as part of a system which defines a code of living, especially as a way of achieving spiritual or material improvement. While unrest is a state of agitation or turbulent changeShow MoreRelatedThe Bombing Of Radical Violence1059 Words   |  5 PagesBoko Haram regime holds similar ideological values as ISIS—which adheres to principles of religious persecution and violence—along with boasting arguably the deadliest terrorist regime in the world. 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Primark Free Essays

Primark stores ltd is a major retail group employing over 10,000 people. A company which has achieved superior performance in recent years is an associated British Foods plc subsidiary called primark. Primark opened its first store in june 1969 in Ireland, where it operates at Penneys. We will write a custom essay sample on Primark or any similar topic only for you Order Now Today it has a total of more than 193 stores operating in Ireland, Spain, UK, the Netherlands, Portugal and Germany and is till aggressively expanding . n the UK, where primark has its maximum numbers of stores. Primark is seconds to Asda’s George in terms of the largest numbers of clothes sold by volume, overtaking established reputed companies such as Marks Spencer. It is reported that their profits have increased by 10% and sales increased by 20% in the year 2009 even though each of its three main markets were subject to recessionary pressure and a decline in consumer confidence. Primark has won several awards each year since 2005and its most recent awards are â€Å"best budget store on the High Street at the GMTV High Street Fashion awards 2009 (awarded 7th may 2009), Retailer of the year for the second year in succession at the BCSC Gold Awards and Value Retailer of the year at the Drapers Record Awards. Apart from this, primark has also been successful in establishing it brand name. celeberties such as Katie Holmes have been spotted earing its Clothes and they also been featured in one fot eowrlds most premium fashion magazine Vogue. Primark has numerous competitors such as New Look, HM and TK Maxx although its biggest competitor in the UK is Asda’s clothing brand George. Primark has managed to increase sales and make profits during turbulent economic climate even when well established brands like Next have not been able do so. Primark adopts the â€Å"no frills† strategy which many successful business in other industries like Ryan air have adopted. They describe themselves as having â€Å"a lean business which responds quickly in the market place, has short lines of management , good buying and excellent distribution†. Furthermore, unlike its competitors, primark specifically targets people under the age of 35. these are the people who are the most fashion conscious. Primark has excellent â€Å"time to market† and it is said that it takes them a maximum of 6 weeks to get the latest trends from the catwalks to the shop floors. Primark has very clearly positioned themselves as being at the absolute bottom end of the market in terms of prices unlike some of its competitors such as Marks and Spencer which have mid range prices. Primark has a clear marketing strategy where it provides the young generation with the trendiest clothes at the lowest prices possible. This is further emphasized by its company slogan â€Å"look good pay less†. †¢ Primark target customer is fashion-conscious and wants value for money. Primark can offer value for money by †¢ Sourcing products efficiently †¢ Making clothes with simpler designs †¢ Using local fabrics and trims †¢ Focusing on the most popular sizes †¢ Buying in volume †¢ Not spending heavily on advertising Task 01 Communication It is a process of exchange of ideas and information between two persons or more through effective way to achieve both general and special purpose. Communication is a key skill in getting what you need from life. It is basically the sending and receiving of messages. [pic] internal communication internal communication is a subset of effective business communication. Internal communication in a business context, is the dialogue process between employees and employer, and employees and employees. How to cite Primark, Papers Primark Free Essays Primark: An Overview Primark Stores Limited is an Irish clothing retailer. Its stores are located in various regions like United Kingdom, Ireland, and Spain. Within this area of responsibility, Primark stores outnumbered other clothing retailer business, with one hundred sixty one stores overall distributed in three major regions: one hundred twenty-five in the United Kingdom, thirty-four in Ireland and eight in Spain. We will write a custom essay sample on Primark or any similar topic only for you Order Now The company positions itself as marketing fashionable at cutthroat prices. The original clothing store was established by Arthur Ryan and his collaborator Micaela Mitchell in Dublin Ireland in 1969.After various success in clothing business, great profits and gross income led them to open stores in local and regional areas. It acquired various premises in different business centers within its local and regional areas which eventually generate more profits and income. Primark is known for selling clothes at the budget end of the market. Its success is based on sourcing supply, making clothes with simple designs and fabrics and targets young, fashion-conscious individuals ages 35 below, offering them simple yet high quality clothes and apparels.Hence, these successes brought significant changes on Primark’s retail business. The relevance of global trends and consumers’ demands on lifestyle made Primark Store Limited reinvent its business scheme and management structure. Primark’s management and business structure As a famous clothing retail store, recently, Primark embarks in different retail products not only restricted on manufacturing clothes but also other related products such as apparels and accessories available to all human sizes. Primark employs simple managerial operation on its stores structure.Each store has its own manager responsible in overseeing the status and business operations. With managers’ inherent authority, they are given the power and control to manage the store w ithin his/her point of responsibility. Moreover, in smaller or larger branches, assistant and deputy managers are assigned to control and manage the store. Within the store, there are different subdivided departments in which a manager is assigned like senior department managers and junior department managers who are in charge for individual departments.Moreover, under management, there are supervisors in charge of staff on a sales floor, on different departments like stock room staff, customer service staff, customer service desk, cashiers who work on the tills, cash office staff and staff responsible to look after fitting rooms. This management and business structure posits a simple way of managing human labor force, however, simple it may seem, yet inevitably creates serious problems and issues if and when proper assessment of the structure will be undervalued.Analysis on the internal and external environment of Primark retail industry   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   The Primark clothing retail industry i s a member of Ethical Trading Initiative, a collaborative forum bringing together businesses to work on labor rights issues in their supply chains. In fact, Primark developed ethical strategy in order to promote labor rights issues within its organization. Certain guidelines and code of conduct must be defined in relation to the ethical implications of work to human labor rights. Primark, initiated and defined its ethical trade strategy in 2006, focusing on assessment of employees working conditions, factories operations’ concerns and addressed necessary improvement. Primark’s annual report of activity should be passed to the Ethical Trading Initiative Board. Moreover, Primark stands to a principle that shared learning and collaboration is one of the most successful ways to achieve sustained positive progression with its supplier’s factories. However, climate change within and outside Primark’s environment changes as it faces the challenges posed by the global business market.Using PESTLE and SWOT analysis, let us examine the ins and outs environment of Primark’s retail clothing industry. The PESTLE analysis allows us to examine the external factors affecting the environment of an organization while SWOT analysis aids us to assess organization’s internal strengths and weaknesses and further identify threats and opport unities external to its environment. Hence, these methods are helpful for us to understand and underline positive and negative factors affecting the external and internal environment of an organization like Primark. In assessing the political, social, and economic factors external to the environment of Primark, we must consider different issues. Primark’s business operations are subject to government policies and regulations. The business firm should conform to the set of policies and regulations stipulated and enforced by the government and policy making body while conforming to the set of regulations and policies, the firm should assume social responsibility as demanded by the global consciousness.Nowadays, business sectors no longer busied themselves to produce bonds of profits and income but deeply involved in social programs to promote social awareness and equality. Cultural and social behaviors of different consumers are important to consider when establishing or venturing business in the global landscape. Furthermore, economic, environment, laws, and technology are inseparable entities in which influence the business operations. The economic stability of certain region can contribu te allot to the business condition of certain firm, like Primark. Technology on the other hand, brought a tremendous effect to the status and development of business operations and marketing programs. It generates new trends in a rapid movement, which if organizations are unaware will impede growth and development. Hence, Primark’s must constantly assess its strategy with consideration to its PESTLE as external factors that in one way or the other affects its internal and business operations. Assessing the strengths, weaknesses, opportunities, and threats of Primark, we go back to its established management or business structure.The need for re-tracking the management or business structure is important in analyzing its SWOT. As to my knowledge upon my encounter with Primark’s business operations, its strengths are gained in its simple, systematic and organized business structure, having assigned proper authorities to proper positions. Moreover, its recognition for valuing high quality of products and quality services with its customer s garnered more strength to attract more people. On the other hand, Primark’s weaknesses can be found in its way of managing people.Although, Primark is a member of Ethical Trade Initiative, study shows given different negative issues concerning its business operations and transactions like child labor, purports less value on ethical matters. Different issues were attacking Primark concerning exploitation and abuse on labor force, other environmental concerns, poor working conditions, and disvaluing workers’ rights. Primark in different surveys was labeled as a fashion industry with oppressive regime. The primacy of autocratic and rigidity on standard structures can be a weakness as well as threats to the life of the company.Since, it goes globally, opportunities are in wide array not only on the part of venturing into regions with much income and profit to gain but also an opportunity to share and provide quality products to fashion-conscious people with vogue to fashion lifestyle. Conclusion Given this analysis we come to realize that each organization has its own external and internal problems to handle. The process in which we enable to identify and analyze such problems is by using proper management method of analysis like SWOT and PESTLE. The importance of these methods is squared to the importance of the business itself. How to cite Primark, Papers