(1) Define the term modified IRR (MIRR). Find the MIRRs for Projects L and S. The modified internal rate of return (MIRR) is a financial measurement of an investment. MIRR can be said as a better version of internal rate of return that can be used for capital budgeting. The problems that occur in IRR can be solved by using MIRR method such as more than one IRR with negative and positive cash flows. The assumption of the project cash flows are reinvested at IRR are not included.
Use of Baumol Model The Baumol model enables companies to find out their desirable level of cash balance under certainty. And this theory relies on the tradeoff between the liquidity provided by holding money (the ability to carry out transactions) and the interest foregone by holding one’s assets in the form of non-interest bearing cash. The main variables of the demand for cash are then the nominal interest rate, the level of actual income which resembles to the amount of desired transaction and to a fixed cost of transferring one’s wealth between liquid money and interest bearing assets. Evaluation of the model Useful in determining optimal level of cash
• For the Liquidity Risk the company could try to anticipate cash flows and hedging activities to better function through strong banking and equity relationships to certify cost. • For the Commodity Risk the company could use option and future which are commodity derivatives this could lower the chances of risk by hedging against the variation in the price of oil. Analysis To what extent the company is hedging or
Sinking fund provision: Risky for issuer and the relatively safe for the investor. C) an asset value is the present value of its expected future cash flows D) By calculating the stream of requiring interest payment +return of par at maturity. By using a financial calculator I input :
Event-study conduction implements a review of a sample of deals. This includes the analysis of prices of acquirer and seller companies before the announcement of a divestment, right after the announcement and after the divestment is completed. A sample of deals contains information about the acquirer and target names, deal value, seller, target and acquirer stock prices in different periods before and after the announcement and the completion of deal. Results anticipated According to the literature revised, the return from the divestment is expected to be positive. The value of the increase depends on the quality of the target.
In other words, in the neoclassical value of the price, while the mean value neoclassical purposes. It then became a new problem for classical economics in defining profit in economic activity. If the value is equal to the price, then where did the profit or benefit can be obtained? it was criticized by the neoclassical define profit as the excess of revenues over costs or expenses. So, if the result of supply and demand for goods at a higher price of labor and capital that goes into the cost of production, the goods and components only
If the price of oil drop, the futures position leads to an offsetting gain. Similarly if the price of oil rise, the futures position leads to an offsetting loss. It is clear that hedger s a consumer as it purchases an asset in the future and wants to lock in the price. Typically, the purpose of the futures contracts was to hedge its exposure to the price of oil and not making a profit. According to a spokesman for Callon, Eric Williams commented that a swap would be better if foresight to know prices were going to dip the way it did.
That rate represents how much we are on average paying interest for the money we have borrowed from various sources. Next, we use that rate for calculation of ENPV (Expected Net Present Value ) or rNPV (Risk-adjusted Net Present Value). The ENPV uses the rate which we fot calculating WACC and uses it to calculate the expected return on an investment. ENPV method consists out of possibilities for each scenario that we have. In beggining, we have Cash Flows for each of the scenarios, there should be minimum of three scenarios: best, normal and
Stock valuation is the process of determining the current worth of an asset or a company. There are two types of valuation, which include fundamental analysis (FA) and technical analysis (TA). The example of the first one is top-down approach and bottom-up approach for the second. FA is the more enhance than TA as it involve the financial and economic analysis to visualize the movement of stock prices, while TA is more on forecasting future prices based on the inspection of past price movements while avoiding losses. Dividend Discount Model (DDM) is one of the example among TA.
Besides the key assumption that investors seek to maximize returns while minimizing risk, Markowitz assumes that markets are efficient, that investors are expected utility maximizers according to Bernoulli and that they make their decisions based on an individual risk function, which leads to a maximization of the expected utility taking expectations about risk and return of a specific investment into consideration. Furthermore, the planning horizon in the modern portfolio theory covers only one period, at the end of each period the investor has to make a new decision about the reallocation of his capital. This makes the asset allocation a static decision with a short-term