Financial Management
Future Value with a Single Cash Flow for A Single-Period Investment Future Value with a Single Cash Flow: Time value of money for a single cash flow is a cash inflow or outflow that investors or lenders received from or paid to once respectively for specific periods. Future value (FV) refers to the amount of money an investment or present
Continue reading Please click the following topics to read details for Net Present Value and Other Investment Criteria as follows: Net Present Value The Payback Rule The Discounted Payback The Average Accounting Return The Internal Rate of Return The Profitability Index Capital Rationing In finance, the net present value (NPV) or net present worth (NPW) is a measurement of the profitability of
Continue reading CAPITAL STRUCTURE AND FINANCE COSTS LEARNING OBJECTIVES I.THE CAPITAL STRUCTURE OF A LIMITED LIABILITY COMPANY II.ORDINARY SHARE CAPITAL III.RIGHTS ISSUES IV.BONUS ISSUES ……………………………………………………… I. THE CAPITAL STRUCTURE OF A LIMITED LIABILITY COMPANY Finance is provided by the capital invested in the business. There are a number of ways that a business can attract financial capital but each has its own
Continue reading Profitability Index (PI) for Mutually Exclusive Project Mutually exclusive project is different from independent project. For mutually exclusive project, we can accept project A or B or deny both, but we cannot accept both projects. We may solve mutually exclusive projects using PI with following way: Compute incremental PI solved via cash flows from project A minus project B, If
Continue reading PROFITABILITY INDEX (PI) FOR INDEPENDENT PROJECT Company may have some projects to make decision invest or not. The independent project is one whose acceptance or rejection is independent of the acceptance or rejection of the other projects. PI = PV/I PV: sum of present value of cash flows subsequent to initial cash flow I: initial cash flow Accept/Reject Decision: if
Continue reading PROFITABILITY INDEX (PI) Profitability index (PI) is the present value of an investment’s future cash flows divided by its initial cost. Also, it is benefit-cost ratio. PI = PV/I PV: sum of present value of cash flows subsequent to initial cash flow I: initial cash flow Accept/Reject Decision: if PI>1=> accept the project if PI<1=> reject the project Advantages of
Continue reading Internal Rate for Return (IRR) for Mutually Exclusive Project Mutually exclusive project is different from independent project. For mutually exclusive project, we can accept project A or B or deny both, but we cannot accept both projects. We may solve mutually exclusive projects using IRR with following way: Compute incremental IRR solved via cash flows from project A minus project
Continue reading Internal Rate of Return (IRR) for Independent Project Company may have some projects to make decision invest or not. The independent project is one whose acceptance or rejection is independent of the acceptance or rejection of the other projects. Internal rate of return (IRR) is the discount rate that makes Net Present Value (NPV) of investment zero. NPV =sum of
Continue reading Multiple Internal Return of Return (IRR) for Mixture Project Internal rate of return (IRR) is the discount rate that makes Net Present Value (NPV) of investment zero. NPV = initial cash flow – sum of present value of each cash outflow + sum of present value of each cash inflow Mixture project has multiple IRRs. In theory, a cash flow
Continue reading Internal Rate of Return (IRR) for Financing Project Internal rate of return (IRR) is the discount rate that makes Net Present Value (NPV) of investment zero. NPV= Cash receipt – sum of present value of each cash outflow when NPV= 0, so Cash receipt = sum of present value of each cash outflow Investing project has only one IRR. Project
Continue reading