Found 1748 Articles for Growth & Empowerment

The major differences between internal rate of return (IRR) and modified internal rate of return are as follows −Internal rate of return (IRR)Calculates discount rate based on internal factors.NPV = 0.Cash flows are Reinvested at project’s IRR.Provides two solutions.Less accurate.Higher than MIRR.Low precision.Modified internal rate of returnCost of capital is used in calculations.NPV = investment (outflow).Cash flows are reinvested at firm rate of return.Provides one solution.More accurate.More realistic than IRR.High precision.

The factors considered by venture capitalist before investing are as follows −Management Team − Investors look for management team that have skills, knowledge, and their record of accomplishment. Commitment towards the goal is the key.Viability of the project − Capital firm will look at product market, end user, competitors and growth of industry/sector before investing in a project.Business planCost and returns − Project cost, financing scheme, source of finance are also studied in details. Investment for a project will be depends on cash outflows. Internal rate of return (IRR) tells about risk associated with the project and the time to ... Read More

Securitization is the procedure of converting assets into securities. In other words, securitization means all assets of a company are consolidated into securities.An originator, special purpose vehicle (SPV), investment bank, credit rating agency, insurance company, obligator and investor are required in securitization.The process involved in debt securitisation is as follows −Identification.Transfer.Issue.Redemption.Credit rating.Amount is collected into pool.Divide amount into small parts and sell that small parts as securities.Buyers who buy these securities will get interest.Mortgage backed securities.Moreover, process continues as a cycleSecuritization is done onTerm loans.Receivables (government & companies).Purchases loans.Lease finance.Mortgage loans etc.Methods in debt securitisation are mentioned below −Pass through ... Read More

Cut off point is base point at which investment proposal is accepted. It depends on risk of the investment proposal. If the proposal has high risk then, cut off point is high and if the proposal has low risk then, cut off point is low.Cut off rate is the lower or base rate at which, investors gets their returns for their investment. Investors will use different techniques to analyse their proposals before investing. Depends on risk of the project and cut off rates varies for different projects.Factors affecting cut off rateAmount − If the investing amount is high, then cut ... Read More

The major differences between cash flow and free cash flow are as follows −Cash flowFinds operating cash inflow and activities of finance and investments of the business.Net cash inflows are calculated.Liquidity of company is determined.It has broad scope.Operating, investing and finance cash flows are used in calculating cash flows.It gets difficult to find out cash flow when, both more than one cash and non-cash transactions are taken place.Not much time is needed.Used in financial accounting.Income statement is required for calculation purpose.Free cash flowFinds Prevent value of business.Valuation of business (investors) is calculated.Financial health of the company is determined.Limited scope.EBIT, Capital ... Read More

SolutionThe solution is as follows −Initial investment = Rs. 25000000/- Disposed value by analyst = Rs.500000/- Book value = Rs.375000/- Tax rate = 25%Tax rate for disposal => (500000 – 375000) * 25%                    => 125000 * 25%                    => Rs.31250/-After deducting taxes => 500000 – 31250                    => Rs.468750/-Terminal cash flows = after deducting taxes + working capital recovered                    => 468750 + 500000                    => Rs.968750/-

SolutionThe solution is given below −Total sales (in billion tons) – current = 16 Total sales (in billion tons) – proposed = 16 + 7 => 23Incremental cash flowsSalesCurrentDomestic sales => 8 * 80 => 640 Export sales => 8 * 120 => 960 Total current sales = 640 + 960 => 1600ProposedDomestic sales => 12 * 80 => 960 Export sales => 11 * 120 => 1320 Total current sales = 640 + 960 => 2280Incremental = proposed – sales => 2280 – 1600 => 680Variable cost => (11*20) + (12*15) => 220 – 180 => 40Contribution margin => sales – variable costsCurrent => 1600 – 180 => 1420Proposed => 2280 – 220 => 2060Fixed costCurrent => 140Proposed => 260Net cash => contribution margin – fixed costCurrent => 1420 – 140 => 1280Proposed => 2060 – 260 => 1800Incremental => net cash (proposed) – net cash (current) => 1800 – 1280 => $520 billionPay back => initial investment/ net cash (incremental) => 1000/ 520 => 1.92 years (approximately)Calculated payback (1.92 years) is less than estimated payback (4 years)Hence, we can conclude that it is a good investment.

SolutionThe solution is mentioned below −Fixed capital = $ 2000 Working capital = $ 200 Salvage value = $ 1600 Book value = $ 1200 Tax rate = 28%Initial cash flows = FC+WC-S + (S-B) * T                    = 2000 + 200 – 1600 + (1600 – 1200) * 0.28                    = 2000 + 200 – 1600 + 112                    = 2312 – 1600                    = = $712Here FC = fixed capital, WC = working capital, S = Salvage value, B = Book value, T = Tax rateA toy manufacturer company had following data New equipment cost = $ 700000 Salvage value = $ 475000 Additional expenses = $ 17500 Book value = $ 390000 Tax rate = 18% Calculate initial cash flowSolutionThe solution is explained below −Initial cash flows = FC+WC-S + (S-B) * T                    = 700000 + 17500 – 475000 + (475000 – 390000) * 0.18                    = 700000 + 17500 – 475000 + 15300                    = 732800 – 4750000                    = $257800Here FC = fixed capital, WC = working capital, S = Salvage value, B = Book value, T = Tax rate

Initial cash flowsInitial cash flow is the cash required to start a project or business. This cash is estimated mainly at planning stages of a business or a project. Fixed capital, working capital, salvage value, tax rate, and book value are considered, while calculating the initial cash flows. Sometimes, the decision for estimation of initial cash flow depends on profitability of a project or strategic purpose. Generally, initial cash flows are negative number because at a start of project or a business, there will be no returns.FormulaInitial cash flows = FC+WC-S + (S-B) * T Here, FC = fixed capital, ... Read More

The factors influencing pattern on capital structure are as follows −EconomyIndustryCompanyEconomyMeasure of economy: Equity is preferred.Capital market: Funds availability depends on the market conditions.Taxation: Varies with different tax structures.Policy of financial institutions: Choosing of debt may change with change in policy.IndustryFrequent variations: Frequent variations in activities may lead to bankruptcy over the years.Competition: Risk factor has to be kept in mind to get profits between competitors.Phase in industry cycle: Source of funds changes with change in phase in industry cycle.CompanyType of company (small, medium, large): Availability of funds depend on type of company.Structure of organization: Flexibility between equity and debt ... Read More