Study On Discounted Cash Flow Techniques Finance Essay - Free Essay Example

Sample details Pages: 6 Words: 1817 Downloads: 4 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? In current practice, managers use DCF (discounted cash flow) and Traditional method analysis to estimate the investment in financial terms. In DCF method considers the time value of money in which reduces the time value of money progressively and it consist with NPV (Net Present Value) approach and IRR (Internal Rate of Return method). This could lead to more popularize investment appraisal techniques among the managers. Don’t waste time! Our writers will create an original "Study On Discounted Cash Flow Techniques Finance Essay" essay for you Create order A valuation method used to evaluate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one. Net Present Value The NPV which based on a required rate of return to each years projected cash flow, both in and out, is the application of discount factors. If the NPV is negative, the project should be rejected and if positive, the required rate of return is likely to be earned and the project should be accepted. NPV is especially appropriate for long-term projects, ranking investments by NPV does not compare absolute levels of investment. For Strengths of NPV by considering the time value of money, it also takes factors, like interest rates, cost of capital and investment opportunity costs into account. NPV not looks at profits and losses the way accounting systems do, it looks at cash flows. It can be tricky to determine and highly sensitive to the discount percentage. The technique works by discounting a projects cash flows by the Cost of Capital set by the organization. Each cash inflow and/or outflow is discounted back to its PV. Then they are summed. Each cash inflow and/or outfl ow is discounted back to its present value (PV). NPV = PV-costs (period, cash flow) pairs (n, Cn) where n is a positive integer, the total number of periods N, and the net present value NPV, the internal rate of return is given by r The NPV rule states that a project should be undertaken should its NPV be positive (Ross et al, 2005). The NPV rule includes the cost of capital or the discount rate to helping to take risk into account and covering any uncertain cash flows that may arise. It only includes the relevant costs, and it only takes these costs when they occur. The NPV rule uses cash flows instead of earnings, it uses all the cash flows of a project, and it discounts the cash flows with regards to the time value of money. Other forms of investment appraisal tend to ignore at least one, if not more, of these points. The NPV rule also provides a clear rule over the acceptance or rejection of a project. However, only future costs are taken into the analysis. This means t hat past costs are ignored because they do not vary with future decisions. There is also a heavy reliance on the discount rate, often difficult to calculate, and as a result, the cash flows can be complicated to predict. Cash flows are usually assumed to take place at the end of each year, but in practice, this is an over-simplification of the issue (Irons, 2004). Internal Rate or Return (IRR) The definition of IRR is based on NPV. In general terms, IRR is the value for r when the NPV equal to zero. This can be formulated as below   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€š It is the method favored by many accountants and finance people, possibly the ones at your company. It provides a simple hurdle rate for investment decision-making. It is not as easy to understand as some measures and not as easy to compute. Computational anomalies can produce misleading results, particularly with regard to reinvestments. Having calculated the IRR the company can then accept any projects with an interest rate lower than the IRR and reject any projects with an interest rate higher than the IRR. NPV is highly sensitive to the discount rate, while IRR bypasses the problem of deciding the correct one. IRR is very good for screening projects. IRR is not an absolute amount, its a rate or ratio that more useful for comparing unlike investments, say stocks and bonds. It also more useful for making international comparisons, and comparisons between different periods and different sized firms. The intention here is not to argue for either point of view, but instead to put the issue into balance. Conclusion The aim of Investment appraisal is to help companies make decisions on which project they should invest in. Investment decisions involves making an outlay of something of economic value, usually cash, which the outlay precedes to benefits, so it is vitally important to a business. If a wrong decision is made, the effects on the business could be significant and it might also mean closing down the activity and sell the premises at a significant loss. According to above discussions, discount cash flow techniques have their own advantages and disadvantages. They normally based on some assumptions and reliable forecasting of key values. So its really important and necessary to choose the right and suitable method. Q2. Appraisal Methods for AP Ltd a) AP Ltd. is trying to evaluate 4 new projects. Assume all the 4 projects have a useful life of 10 years. For every business to know where they should invest their money it is essential to research what they should do. There are few main methods of appraisal that should be looked at: 1)  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   Annual Net Cash flow 2)  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   Initial Investment 3)  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   Cost of Capital 4)  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   Internal Rate of Return (IRR) 5) Net Present Value (NPV) Calculations I am going to use following form to calculate all those answers. ACF(Annual Cash flow)ÃÆ'Æ’-Present value Interest Factor of Annuity (PVIFA)-I.I(Initial Investment)=NPV PVIFA = 1-(1+r)ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¾ÃƒÆ' ¢Ãƒâ€šÃ‚ Ãƒâ€šÃ‚ ¿ or table of PVIFA r Where r = interest rate n = number of periods A) IRR is the value for r when the NPV equal to zero. PVIFA = 0+I.I = 449.400 = 4.494 ACF 100.000 In the PVIFA table, 4.494 in the 10years row equal 18%, which is the IRR for the investment project. So the answer of A is 18% B) The Annual Cash flow in project 1 is  £100,000, Initial Investment is  £449.400 and the Cost of Capital is 14% which equal to 5.216 in the PVIFA table , to calculate the NPV of project we can use the formula as below. NPV = ACFÃÆ'Æ’-PVIFA-I.I =100,000ÃÆ'Æ’-5.216-449.400 =72,200 So the answer of B is  £72.200 C) In project 2, the IRR is 20% of 10 years life time. Then we can found the PVIFA of project 2 is 4.192 from the PVIFA table. And according to the definition of the IRR, we can use the kind of expression as below Cost of Capital = ACFÃÆ'Æ’-IRR20%,10years =70,000ÃÆ'Æ’-4.192 =293,400 So the answer of C is  £293,400 D) We already known the PVIFA14%, 10years is 5.216 and Initial Investment is  £293,400. So the NPV can be formulated as NPV = ACFÃÆ'Æ’-PVIFA-II =70,000ÃÆ'Æ’-5.216-293,400 =71,720 So the answer of D is  £71,720 E) The IRR of project 3 is 14%, and we know PVIFA14%, 10year is 5.216 . In this situation, we can follow the equation as below Net cash flow = Initial investment = 200,000 ÃÆ' ¢Ãƒ ¢Ã¢â€š ¬Ã‚ °Ãƒâ€¹Ã¢â‚¬    £38,344 PVIFA14%, 10yr 5.216 So the answer of E is  £38,344 F) Now we know ACF of project is  £38,344, so we can calculate F as follows F= NPV+II = 35,624+200,000 = 6.145 ACF 38,344 Then looking for the PVIFA 6.145 in the 10 years row of PVIFA table, we can find tha t this value equal to 10% which is the Cost of Capital for project 3. So the answer of F is 10% G)According to the table PVIFA12%, 10year is 5.650, and Initial Investment is  £300,000 in project 4. Net cash flow = NPV +I.I = 39,000+300,000 = 60.000 PVIFA14%, 10yers 5.650 So the answer of G is  £60.000 H ) PIVFA= 0+I.I = 300,000 = 5 ACF 60,000 According the PVIFA table, the PVIFA 10years of 5.0 in is 15%, which means internal rate of return for the investment project 4. So the answer of H is 15% b) Both NPV and IRR methods valuable and favorable guides in business practice. Both the IRR and the NPV take account of time value of money, but situations arise where the IRR method leads to different decisions being made from those that would implement the NPV method. However, In some cases, a project with a higher NPV can produce a lower IRR. As in this part, the IRR and NPV method are not always agreed. First, compare the three project 2,3 and 4, we can easy to find that the project 2, which has greater IRR, also get greater NPV. The method of IRR and NPV are agreed. Obviously, for the AP Ltd, the project 2 is better than the project 3 and 4. Second, compare the project 1 with the project 2, the IRR and NPV method are offering conflicting recommendations. The project 2 has greater IRR than the project 1 whereas the project 1 has larger NPV than the project. why the NPV and IRR methods are getting conflicting recommendations and which one we should choose? Conflicting recommendations can be occurred, because projects have differences in size and/or cash flow timing. When one project is larger than another one, the bigger project can has a larger NPV but a smaller IRR, while the smaller project may get a larger IRR but smaller NPV (Emery et al, 2007). As in this case, the project 1 has larger NPV, but smaller IRR than the project 2. In generally, the project which get larger NPV is better. Therefore the method of NPV is superior to the method of IRR, when mutually exclusive projects differ in size. The problem of the difference in cash flow timing is caused by the reinvestment rate assumption (Emery et al, 2007). The method of IRR assumes that the future cash flow of the project can reinvest at the IRR, while use the method of NPV to imply that they are going to earn the cost of capital. And the best assumptions is the one which made my the method of NPV. Because if the project generate the business organization use the cash flow, the organi zation doesnt need borrow money from the other place. In other way, the cost of capital is the opportunity cost of the funds. Again, the method of NPV is superior and has better assumption. Conclusion When using NPV to guide an investment decision, a firm needs to estimate the future cash flow and the return required by its investors. According to finance theory the return required depends on the projects risk and required by the investors is often referred to as the firms cost of capital. Projects offer rates of return less than the cost of capital are not worthwhile undertaking financially, and the return Investment projects offer rates of return higher than the cost of capital add value to the firm. According to those above considerations and the results of the investment appraisal techniques, I would recommend the project 1 for AP Ltd. Because it has a larger NPV and from the financial view that it has the highest return on investment.

Environment - Energy Resources - 4599 Words

Part 1 Introduction What is your first thought of energy resources? Is it something that got to do with electricity? First of all, I would say that the energy system is not very sustainable because it can either be sustainable, or not sustainable. The energy resources used by mankind have grown dramatically and it is affecting the environment by leaving negative impact to the environment. Not only the government sector, but also the private sectors that are aware of the environment are trying to find alternatives to sustainable development to prevent the environment from being destroyed. Fossil Fuels The energy resources that are most commonly use by mankind is fossil fuels, which consist of oil, coal, and natural gas. Fossil†¦show more content†¦The hospitality and tourism industry in Malaysia will be affected by natural disaster as results of fossil fuels burning. Three Ways of Malaysian Tourism Industry to Counter Effects of Fossil Fuels Burning To tackle the impacts of fossil fuels towards the environment and the hospitality and tourism industry, the usage of biofuels should be practice widely. Biofuels is much more environmentally friendly and it would preserve the environment because biofuels would not release any harmful gas such as sulphur and acid emissions. Biofuels are fuels that are made from plant materials. Most biofuels now are obtained from fermentation of food products, such as corn kernels and sugar cane, and vegetable oils, such as soy and oil palm. However, there was a protest in using food products to produce biofuels. It was fully supported when a kind of plant named jatropha came in. Jatropha is resistant to drought and pests, and it produces seeds that contain up to 40% oil, which can be used in a standard diesel engine and also processed into biomass to power electricity plants. The usage of biofuels is environmentally friendly because biofuels are renewable, and they can offer environmental benefits su ch as lower emissions of carbon and sulphur compared with petroleum-based fuels. If lower emissions are to be released by biofuels, then the environmentShow MoreRelatedSustainable Environment Friendly Energy Resources Essay2188 Words   |  9 Pagescivilization mainly depends on the naturally limited fossil fuel. Those fossil fuel resources will end soon and their usage causes severe environmental impacts that if neglected may cause a catastrophic live extinction on earth. Thus to keep our development going while saving our environment. We have to use sustainable environment friendly energy resources and upgrade our systems to utilize the energy produced from those resources. Fossil Fuel Sustainability. Fig ‎1.1 Expected fusel fuel reserves. 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The impetus has come from a variety of factors such as the collective development of nonconventional reso urces, the environmental concern of Canadians, and the demand for renewable energy sources. Many premiers have since called for a ‘national energy strategy’ however the governments tendency to avoid national approaches to energy allows no progression to be made.Read MoreUse Of Phase Of Building A Largest Stage That Impacts Environment During The Life Cycle1583 Words   |  7 PagesUse phase of building is the largest stage that impacts environment during the life cycle, so require more attention in the field of energy saving of building. In the initial design stage of buildings, through LCA can help design decisions, such as the appropriate use of zero energy building techniques. 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Scientist in a Society

Question: Summarise the essential elements of scientists in society - towards creating opportunity for greater involvement of scientific researchers in policy research and development? Answer: Scientist in a Society - Creating scope for wide involvement of researchers in Science in the research development and Policy: Innovation in science affects the lives of people. Some innovations are used as a solution some as a future prevention and some for providing a a courageous new world a dreamlike opportunity. Society gets real benefit from energy production and gene technology. It is a matter of question whether technology and science fits in the corporate, social and cultural life of a nation. With possessed knowledge researchers must provide guidance for the decision makers of the government involving new techniques (Society for Science, 2015). A disconnection exists in between Policy makers and the community of Scientists. If these two works collaboratively then the country would gain benefit. The training process of scientist begins and ends in the laboratory and their skills are deployed in places rather than University due to shortage of Posts (Symposium 3: Environmental Scientists as Effective Advocates: Above the Din but in the Fray, 2011). Preparing students and graduates in Post doctorates for careers outside academics gets poor attention. Scientists should be proactive in defining scenario of scientific evidence to the makers of policy and in order to do that the researchers should learn how these policies shall be made assessed. Attempts on collaborative work by the parliament and researchers were made. Around thousand people have been approached in a workshop and it was found that students have appreciated the approach. Many were found nave about such involvement to which policy making through scientific research had been highlighted for future reference. References Society for Science, (2015).Society for Science. [online] Available at: https://www.societyforscience.org/ [Accessed 18 Mar. 2015]. Symposium 3: Environmental Scientists as Effective Advocates: Above the Din but in the Fray. (2011).Bulletin of the Ecological Society of America, 92(1), pp.115-123.

Native Americans and civilization

Land ownership was the leading cause of the conflict between Native-American civilization and western settlement by American citizens. The entry of the colonialists into Native America was the beginning of the suffering of the Native Americans. The colonialists considered themselves civilized and did not want to stay in the same lands s the Native Americans. They wanted to take the Native American lands by buying them at a lower price and evicting the Indians to move from the east to west.Advertising We will write a custom essay sample on Native Americans and civilization specifically for you for only $16.05 $11/page Learn More However, this was difficult at first because of the proclamation that prohibited occupation of land acquisition beyond the eastern ranges. This did not last for long as the Revolutionary War changed it all; the settlers had gotten access to the native land by either buying it or exchanging it with a land in the east. Policy The fi rst policy that the settlers were suing was the assimilation policy where they claimed that they wanted to civilize the Indians. However, the situation changes in 1812 when the policy of assimilation of the native lands was no longer effective, and the Indians forcefully moved to the west. This was because of the Indian Removal Act of 1830, (Cassinelli pp 114). The forceful eviction of the Native Americans from their lands referred to as the Cherokee as the Trail of Tears. Many Indians lost their lives due to the long walk they had to make, to the lands in the western part of the Mississippi river. The native Indians not only lost their lands but also their culture in this eviction. Other Indians lost their lives as they were organizing attacks against the settlers. They had the determination to protect their culture and land, but the law and the settlers were too powerful. The Cherokees, Chickasaws, Choctaws, Creeks, and Seminoles resolved to join the Confederate conference in 1861 . They sent representatives to the conference to voice their suffering. However, the natives got punished after the war. The natives had to sell their lands at extremely low prices, give up their territories, and agree to let the railway pass through their land. Dawes Act The main blow came in 1887 when the Dawes Act was put into effect. The act stated that the communal land holding was no longer accepted and that everyone should hold private lands. The Indians were given twenty five years to start owning private lands after which they would become eligible citizens of America. The policy aimed at reducing the land owned by the Indians and gave it to the settlers. Thomas Jefferson’s vision of the yeoman was the one who had the idea of taking the land. He envisioned a land full of farmers doing different activities that can generate income.Advertising Looking for essay on history? Let's see if we can help you! Get your first paper with 15% OFF Learn More This is how they saw the lifestyles of the native Americas; a life with no vision. The Euro Americans wanted to teach the Native Americans their way of life because they saw themselves as more superior than the natives. They saw their way of life as the most civilized of all cultures. This was because the Indians valued land and did not believe in cultivation of all the land. The Euro-Americans considered this a waste of fertile land that was fertile and could be put into use. The motive behind the assimilation of the native American into the European way of doing thins was to destroy the Native American culture by assimilating them into the main stream society, (Parks, Pierpont Morgan Library, Nelson, Wiles pp 132). Forceful Education The other policy of assimilation was the forceful education system that used on the Indian children. The Native American children got separated from their parent’s, and taken to boarding schools where they were `shaped’ to fit into the civilized word. The children did not communicate    their native language when they were in school. The other conflict between the Native Americans and the euro Americans was the slave trade. This was particularly common in Virginia and Carolina states. The settlers took advantage of the rivalries among the native tribes to get slaves and use them in their farms. The settlers got slaves from the villages, and took to the slave market where interested buyers would come and make their choices. The attacks forced the natives to flee from their lands and go to places where there were no raids. This was an added advantage to the settlers as they occupied these pieces of land without a buying them. In 1704,  they captured about 1000 Native Americans, and 300 killed in Californian State only. This shows the extent to which the settlers would go just to get the fertile lands where they would practice farming, (Cox, Cox pp 234). Effects of the Conflict The effects of the conflicts between the Nat ive Americans and the Euro Americans were extremely adverse, because the natives ended up getting assimilated into the western culture. They lost not only their land, but also their lives in the struggle to remain intact. The Euro Americans wanted to get the fertile lands owned by the natives and put it into useful projects like farming. In order to do this, they had to form acts that could help them acquire the pieces of land. Works Cited Cassinelli, Peter. Native American land conflicts: the Western Shoshone’s changing concept of land, 1863-1979. Carolina: San Jose State University, 1979.Print.Advertising We will write a custom essay sample on Native Americans and civilization specifically for you for only $16.05 $11/page Learn More Cox, Eugene, Cox, Joyce. An American Saga: Some East Tennessee Taylors. New York: iUniverse, 2011,Print. Parks, Robert, Pierpont Morgan Library, Nelson Christine and Wiles Stephanie. From Jackson to Lincoln: democra cy and dissent. Pennsylvania: University of Pennsylvania Press, 1995, Print. This essay on Native Americans and civilization was written and submitted by user Audriana Z. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.