Corporate Finance Question留学硕士会计作业

发布时间：2016-03-15 09:29

Question1
你想在大学毕业三年后到欧洲去拜访亲戚。该行预计将耗资10000美元，当时。你的父母已经为你存了5000美元，你在一个支付6%利息，每年三年，从现在开始。希尔达阿姨已经同意资助这个平衡。如果你打算把希尔达阿姨的礼物放在三年的投资收入10%，那么她现在要存多少钱，那么你可以在三年后拜访你的亲戚吗？
由于希尔达阿姨所需的财政平衡，，那么旅行未来支出10000美元应同等存款的总和一样，因为父母存了5000美元在描绘成熟的三年期结束。
一段时期的结束是下一个时期的开始，所以
FV（现金流出）= PV（现金流入）；
You want to travel to Europe to visit relatives when you graduate from college three years from now. The trip is expected to cost a total of $10,000 at that time. Your parents have deposited $5,000 for you in a CD paying 6% interest annually, maturing three years from now. Aunt Hilda has agreed to finance the balance. If you are going to put Aunt Hilda’s gift in an investment earning 10% over the next three years, how much must she deposit now, so you can visit your relatives at the end of three years?

Due to Aunt Hilda required finance balance, so the trip future expenditure $10,000 should be the same with equivalent deposit sum, because the parents deposited $5,000 at the end of the period depicted on maturing threes years.
The end of one period is the same as the beginning of the next period, so
FV(cash outflow) =PV(cash inflow);
According to the future value formulation,  , so,
10000美元= 5000元×（1＋6%）3＋1
1 = 4044.92美元
父母的未来价值的沉积需要4044.92美元
未来的价值是一个活期存款将增加一个固定的时间，同时支付复合利息。当提到的问题，我要把阿姨的礼物hilida投资收益10%在接下来的三年，这意味着在我三年的投资回报每年利率将达到10%所以我应该知道需求沉积的现值金额。
$10,000 = $5,000*(1+6%)3 +FV1
FV1= $4,044.92
The future value of parents deposition is required to $4,044.92
Future value is the amount to which a current deposit are going to increase over a constant period of time while paying compound interest. As the question mentioned, I am going to put Aunt Hilida’s gift in an investment earning 10% over the next three years, which means in three years my investment annually interest rate of return will arrive at 10% so I should know the amount of the present value of requirement deposition.
Based on the formulation,  
PV= $4,044.92/ (1+10%)3 = $3,039.01
So $ 3,039.01 she should be deposited now that I can visit her at the end of three years.
Question 2
Consider the following two mutually exclusive projects
Year Cash Flow (A) Cash Flow (B)
0 -54,000 -23,000
1 12,700 11,600
2 23,200 11,200
3 27,600 12,500
4 46,500 6,000

The company requires a return of 14% on the investment

A) which project should the company choose based on payback period and why?
When a company budget the capital, payback period is defined to the period of time required to recover the initial expenditure to get the break-even point.(Paul W. et al., 2010) 
Using the formulation to present PB is  
Project A: 3+($54,000-$12,700-$23,200-$27,600/$5,4000)=2.8 years
Project B: 3+($23,000-$11,600-$11,200-$12,500/$23,000)=2.5 years
The method of payback period is the basic aspect of considering whether the investment projects can recover the initial cost. From the result we can see that the project A payback period is 2.8 years while project B is 2.5 years, used less time to recover the initial investment. So based on methods of payback period project B should be selected as the investment item. 

B) Which project should the company choose based on NPV and why?
The net present value is stated as the amount of present values of the individual cash flows of the same entity.(Khan, M.Y., 1993) Moreover, NPV also can be described as the differentiation of discounted sum which mainly pointed out cash inflows and cash outflows. (Grubbström, Robert W., 1967)
The formulation of net present value is  , so

Project A: 
NPV1 = -$54000+ $12,700/(1+14%)1+ $23,200/(1+14%)2+ $27,600/(1+14%)3+ $4,6500/(1+14%)4
  = -$54000+ $11,140.35+ $17,851.65+ $18,629.21+ $27,531.73
  = $21,152.94
Project B: 
NPV2 = -$23,000+ $11,600/(1+14%)1+ $11,200/(1+14%)2+ $12,500/(1+14%)3+ $6,000/(1+14%)4
  = -$23,000+$10,175.44+ $8,618.04+ $8,437.14+ $3,552.48
  = $7,783.1

The calculation process compares the net present value of the difference between project A and B , as well fluctuating inflation and payback.
Both net present value for A and B are positive that certificate that the two types investment of realistic return rate is higher than the required return rate. The investment rate of return for project A is better than the project B thus it can be selected.  
C) Which project should the company choose based on IRR and why?
IRR is internal rate of return is a rate of return applied in capital budgeting to evaluate and confront the profitability of investments. (Hartman, J. C.& Schafrick, I. C., 2004) As for how to run out the internal rate of return, it has closely relationship with net present value, explained by a word a rate of return for which this function is zero is an internal rate of return.
So the function can be described  , the internal rate of return is a rate quantity, hence for project A and B, it is also a emblem of efficiency, effectiveness, or yield of an investment when measure a project. Comparing with the net present value that is an presenter of the magnitude of an investment.
Project A:
IRRa= -$54000+ $12,700/(1+ra)1+ $23,200/(1+ra)2+ $27,600/(1+ra)3+ $4,6500/(1+ra)4 =0
Using excel: ra≈28.50%
Project B:
IRRb=-$23,000+$11,600/(1+rb)1+ $11,200/(1+rb)2+ $12,500/(1+rb)3+ $6,000/(1+rb)4 =0
Using excel: rb ≈30.94%
Both project A and B can be acceptable for the firm because the calculated internal rate of return is higher than their minimum acceptable rate of initial investment. However, in contrast with the initial investment value between projectA and B, A has twice initial capital expenditure than B whereas its internal rate of return is higher than the A.
Hence, only referenced IRR as standards B should be selected due to it using less cost receive more payback. In general, a firm ought to coordinated IRR and NPV or other more complex factors that influence its investment rate of return.
D) Which project should the company choose based on profitability index and why?
Profitability index is the ratio of payoff to investment of a proposed project. It is a useful tool for ranking projects because it allows the  to evaluate the sum of value created per unit of investment.(Audit IT, 2014)
The ratio is calculated as  

Project A:
PVa=$12,700+ $23,200+ $27,600+ $4,6500/(1+14%)4≈ $65,129
PIa= $65,129/$54,000= 1.206
Project B:
PVb= $11,600+ $11,200+ $12,500+ $6,000/(1+14%)4≈ $24,453
PIb= $24,453/$23,000=1.063
Each of project are acceptable because the profitability index higher than 1 separately. But project A perform better than B in making more profit.

E) Which the project the company will final choose and why?
From above calculation, my answer is ‘it’s depends’ for my perspective. But I suggest managers are able to preference consider selecting project A as their investment project. For reason of the result of future payback, net present value, and profitable index, project A acted a obvious advantages than B. Many factors, however, are required managers to be considered when decide a investment project for the real world it ought to be more complex than this questions background. If the investor is small or mid-size company, considered from cash security, the IRR for project A is quite suitable for the small-size cash investment.
Otherwise, may be other factors as policies, currency rate fluctuation, risk assessment and depreciation of machine have great effect on the future investment conducting. 

Reference文献

Grier C. L., Nagalingam, S. V., 2000. CIM justification and optimization. London: Taylor & Franci. p. 36.

Hartman, J. C.& Schafrick, I. C., 2004. The relevant internal rate of return. The Engineering Economist 49(2), pp 139–158.
Khan, M.Y., 1993. Theory & Problems in Financial Management. Boston: McGraw Hill Higher Education.
Paul W. F., Neil T. Bendle, Phillip E. Pfeifer, David J. Reibstein., 2010. Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. New Jersey: Pearson Education Press.
Grubbström, Robert W., 1967. On the Application of the Laplace Transform to Certain Economic Problems. Management Science (13) pp 558–567. 
Audit IT, 2004. Profitbility Index, 10th September 2014 from Ready Ratios.

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