Saturday, May 17, 2008

I have a serious problem

This is not the best answer, I need my soul back. No feel ar write this assignment that time, this is bad.

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(vi) Decision Making between the 5 Results

Based on the results above, the payback period rule is important because a faster return on the asset is of a more concern. But the payback period only has a minimal difference of a 0.04 period, we should then use the Net Present Value (NPV).

Considering the results above, I would suggest the green tractor because 1st of all, the tractor generates a higher cash flow over the 5 years period despite it has a slower rate of return. As a finance manager, we should maximise the shareholder’s value. By doing so, the green tractor produces a higher cash flow.

Although the red tractor does bring an earlier return through the payback period rule to cover the cost of the red tractor, the differences between the two assets are only separated by a month. It should be disregard where the red tractor requires 3 years 3 months and approximately 2 days while the green tractor requires 3 years 3 months and approximately 9 days to recover the cost of the asset.

Regardless of the payback period, the net present value shows that the green tractor generates a higher value for the shareholders.

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The factors that determine a cost of capital are general economic conditions, market conditions, and marketability of the securities (bonds, ordinary share, and preference share). Other than that, the firm’s operating and financing decisions involving business risks and financing risks. The amount of financing requires which is how much finance you can raise.

The cost of capital is the rate of return that the firm must receive on the wealth invested by the shareholders of the company in order to keep them satisfied.

The firm has two kinds of cost of capital. One of the costs of capital is that the bank borrows money from financial institutions and paying back an annual interest to the financial institutions regularly.

On the other hand, the firm’s alternative choice is to use the shareholder’s money. In which results to a debt and equity finance. These investors require a return on their investment. In which the firm has to consider paying the investors in the form of dividends or other sources of income, for example issuing a bonus share to the investors.

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My essay sucks wei. Help... I need serious help...

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good day and goodnight.

2 comments:

Jade said...

heyy...though i dont understand a single thing from ur essay...but...just chill, im sure u can manage it de... =)

RichardLow said...

haha.. thanks.. hopefully can pull through. =)