Essays on Period Method

Introduction

Graham and Harvey surveyed about 4,440 firms chief finance officers, and only 392 reviews came back. Large enterprises rely primarily on present value methods, capital structure and capital asset pricing models whereas small businesses likely use the payback period technique (Graham 12). Companies are more concerned about sustaining financial flexibility, healthy credit rating, stock appreciation, and EPS (earnings per share) dilution, especially when the entities are issuing equity. Little evidence was also found that organizational executives have a great concern about asymmetric information, personal taxes, free cash flows, and asset substitution. There is also some support for trade ...

Introduction

The decisions that the management makes regarding capital investment and financial management determines the success of any corporation. In essence, the management should make the investment, financing, and dividend decisions carefully to facilitate the maximization of the shareholders’ wealth. Ideally, sound investment decisions ensure that the firm utilizes the existing investment opportunities well. Additionally, sound financing decisions make sure that the firm has necessary sources of fund to use in its investments. What is more, sound dividend decisions ensure that the company retains enough earnings to distribute to the shareholders or use in future investments. The decisions about the ...

Tools for Evaluating the Projects

Biz Systems Consultants Ltd is a firm that is set up by experienced persons. Now they are in consideration for the projects that have investment of 17, 00,000$ and three projects are mutually exclusive. In this report we will find out the ways and tools that can help the firm in accessing the feasibility of the project. There are different methods of accessing the feasibility of projects as well as many sources of finance but we will discuss here the three major sources of finance that are best suitable for the company (Bearse, 1993). For the company Biz ...

MODULE 08: BUSINESS DECISION MAKING

[University]

Appalachian PLC is a renowned company in the manufacture of the fine timber products. The company has established markets in the United Kingdom and Europe. Having in operational for many years, Appalachian PLC has dominated the furniture markets. However, in the last four years the company the company has recorded downward trends losing on its potential markets. This has led the management thinking of establishing new markets in Asia particularly in China. China is a completely new area of doing the business, and it will require careful examination of the factors that can affect how a business can perform. Among the ...

Answer 1)

Payback Period is one of the most simple technique of capital budgeting where it is used to ascertain the time it will take for the entity to recover its initial cash outflows from the cash inflows generated by investment project. It is an important determinant as no business organization would like to invest in projects with long payback time period.

Payback period is calculated with following formula:

Payback Period= Initial Investment/ Annual Cash Inflows

Answer 2)

Secondly, it is the simple and easy applicability of the payback period which is the another reason for continued applicability of the payback period method.

Answer 3)

In order to evaluate the usefulness of ...

Business

Net present value is one of the most widely used financial methods for the investment appraisal. The first advantage of using the NPV method of investment appraisal is that it incorporates the time value of money. Moreover, the discount rate or cost of capital used in the calculation of NPV of any project is calculated after taking care of all the financial structure and tax adjustments of the business. This discounting factor also contains the risk and inflation adjustments which provide accurate time value of money. Another advantage of the NPV method of investment appraisal is that it uses ...

There are different methods used in capital budgeting. They include the net present value, profitability index, internal rate of return and payback period. This research paper will evaluate the differences that exist between these methods basing the argument on the strengths and weaknesses of these methods. The net present value method is used to determine whether a certain project should be invested or not. It is obtained by summing the present value of the future cashflows of a project. On the other hand, profitability compares the present value of the future cashflows to the initial capital outlay of a project in ...