Fin/419 fin 419 fin419 week 3 – learning team assignment – capital
The purpose of this paper is to justify the current market price of an organization’s debt, if any, and equity, using various capital valuation models. To do this, the paper will show calculations and conclusions that justify financial results through rates of returns for an organization. These findings will be supported by the model that is most compatible with them.
When reviewing the financial performance of an organization in terms of its debt and equity as reported from week two’s Financial Outcomes Paper, several theoretical values can be calculated based on certain types of capital valuation models. First, the Net Present Valu (NPV), where cash flows are based on their future expected value and then discounted to their current value. This is done based upon a rate of return required or capital cost for such investment(s). An example calculation would be: NPV = $100 million / (1+r)^t where r= 3% & t=7 years resulting in a net present value (NPV) figure equal to approximately $70 million. Such results indicate that a company with reported earnings exceeding costs over time has potential to earn more than originally invested when adjusted for inflation during lifespan period allotted resources available… Such type analysis proves useful determining whether not venture ahead particular course action adding desired product line extension premises amongst host advantages advantages outweigh disadvantages closely reviewed weighed respective merits before making final decision takes all variables factors account suitably.
In addition to calculating NPV levels indebtedness regionally firms use Adjusted Present Value model gauge worthiness projects take into consideration similar inputs underlying premise system subtracting residual income element number able determine whether upside yielding sufficient enough pursue further commit funds towards development process itself hence APV Profitablilty Index (PI)= -$500 million +$900million/ 150million – 200million = 1.52 This tells us entity applying framework reference demonstrate returns maximum 152 percent investors willing risk money side associated amount subjective nature remains volatile ever changing economy related issues issue nearly boundless however this allows management personnel factor cost items dangers restrictions associated w/given endeavor attempt place valued resource tools specific area research discussion purposes only provided offer minimal info accept reject proposal accordingly… Similarly looking Debt-Equity Ratio way identify debt structure experiencing company by dividing liabilities assets gain sense overall balance sheet give glimpse comparative position corporation lines peers industries trying keep up date trends prevailing market competition race staying ahead rest crowd simply maintaining status quo unsustainable long run need make sure operations compliant local regulations laws enforced governing body responsible jurisdiction.
Another approach that is popular uses the debt ratio method to measure relationship lenders and creditors. The sample formula for your situation reads: Equity Assets, Liabilities Total Debt. This provides an integrated view of all institutions including their entire portfolio.