this is a business case study which needs a word document and a separate spreadsheet as well. I need...

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this is a business case study which needs a word document and a separate spreadsheet as well. I need the spreadsheet by tomorrow 16th and the rest can be given to me by 18/05. there is a short recording attached which has all instructions.

WEBVTT 00:02:11.000 --> 00:02:11.900 all good 00:03:32.000 --> 00:03:32.900 Has the session started, I can't hear anything. 00:03:47.000 --> 00:03:47.900 yes it started 00:05:10.000 --> 00:05:10.900 perfect 00:05:13.000 --> 00:05:13.900 i can hear 00:05:15.000 --> 00:05:15.900 Yes 00:05:28.000 --> 00:05:28.900 I think, I'm encountering problem. Maybe I will listen to the recording. 00:38:53.000 --> 00:38:53.900 yes madame yes 00:38:54.000 --> 00:38:54.900 yep all good 00:38:55.000 --> 00:38:55.900 yes 00:38:56.000 --> 00:38:56.900 yes 00:38:58.000 --> 00:38:58.900 Yes 00:39:00.000 --> 00:39:00.900 yes 00:40:18.000 --> 00:40:18.900 yes 00:40:19.000 --> 00:40:19.900 yep yes 00:40:20.000 --> 00:40:20.900 yes 00:40:27.000 --> 00:40:27.900 yep 00:48:23.000 --> 00:48:23.900 All good. it was helpful. 00:48:37.000 --> 00:48:37.900 Thanks have a good night 00:48:40.000 --> 00:48:40.900 Is there any word count limit? 00:48:41.000 --> 00:48:41.900 No, 00:48:44.000 --> 00:48:44.900 thank you 00:49:11.000 --> 00:49:11.900 1000 words 00:49:13.000 --> 00:49:13.900 Can we compare and discuss individually, such as payback period, IRR, and Profitability index, even if one project does not have these? 00:49:14.000 --> 00:49:14.900 its in the assessment overview 00:49:15.000 --> 00:49:15.900 thank you 00:49:31.000 --> 00:49:31.900 1000 words plus spreadsheet 00:50:04.000 --> 00:50:04.900 If the IRR is really really high, should we include it in the analysis? 00:54:48.000 --> 00:54:48.900 For option 2, if we license someone to produce our plastic packaging shouldn't we have some costs connected to that? I can't find anything about that in the text. 00:56:36.000 --> 00:56:36.900 it talks about the negotiations on what the terms would be? 00:59:17.000 --> 00:59:17.900 No. all good so far. Thanks again 00:59:33.000 --> 00:59:33.900 All good. Thanks. Have a great night 00:59:45.000 --> 00:59:45.900 thank you 00:59:53.000 --> 00:59:53.900 Thank you for this session 01:00:08.000 --> 01:00:08.900 thank you PowerPoint Presentation Notes on the video “Applying CAPM” The CAPM is the major model used to estimate the return that shareholders require (called the required return), which from the firm’s perspective is the cost of equity. The video refers to the output of using the SML equation as the “required” rather than “expected” return. If the market is in equilibrium these two returns will be the same. When using CAPM to estimate the cost of equity, we usually make this assumption. The video refers to “market” risk, a synonym for systematic risk. The video refers to various sources of data for government bond yields and beta. However, the S&P Capital IQ database, a commonly used database in practice, includes all the required data in one place. See Web Links on the unit BB site for further details on this database. Putting the pieces together An asset’s required return (the minimum expected return needed to induce an average investor to buy the asset) is made up of 2 components: a risk-free return (rf) to compensate for inflation and time a risk premium (RPi) for bearing market risk. The market risk premium (RPM) represents average market risk (beta = 1) so we adjust it for the higher or lower market risk of an asset using the asset’s beta, therefore RPi = bi(RPM). The CAPM’s SML equation in its various forms. CAPM inputs for equities: Australian context Use the current YTM on Australian government bonds as a proxy for rf Can source from S&P Capital IQ Match maturity of the bond to the investment horizon for asset i KPMG (2015) survey finds 88% use 10 year gov’t bonds in equity valuations. Use the historical market risk premium as a proxy for RPM Australian studies consistently show the historical RPM to be in the range of 6-8%. Brailsford et al. (2012) finds RPM = 6.4% over 1883-2010. KPMG (2015) finds nearly 80% use 6%. Use a beta for asset i as a proxy for bi Can source beta from S&P Capital IQ. Brailsford, T., Handley, J.C. & Maheswaran, K. 2012, ‘The historical equity risk premium in Australia: post-GFC and 128 years of data’, Accounting & Finance, 52, pp. 237-247. KPMG 2015, Australian Valuation Practices Survey 2015, KPMG, available at https://www.kpmg.com/AU/en/IssuesAndInsights/ArticlesPublications/valuation-practices-survey/Documents/valuation-practices-survey-2015.pdf, accessed 14 August 2015. Example: Telstra and Billabong rf: 2.78%; 11 August 2015 yield on 10 year Australian gov’t bonds1 RPM: 6.4% (Brailsford et al. 2012) bTelstra = 0.50 and bBillabong = 1.20; 11 August 2015 betas1 1 Yield sourced from RBA statistics and betas sourced from Morningstar DatAnalysis database. However, as of 2019, we can access all needed data from the S&P Capital IQ database. See web links for details. Example: Telstra and Billabong Assume you have the following return forecasts: Telstra: 7% Billabong: 8% If confident in all estimates and forecasts, is each company’s stock underpriced, underpriced or correctly priced? Telstra is underpriced because forecast (7%) > required return (5.98%) That is, if your assumptions and the forecasts are correct, demand for Telstra stock should drive up the price. Billabong is overpriced because forecast (8%) < required return (10.46%) that is, if your assumptions and the forecasts are correct, investors will sell billabong stock, driving down the price. required return can also be used as an estimate of cost of equity. required="" return="" (10.46%)="" that="" is,="" if="" your="" assumptions="" and="" the="" forecasts="" are="" correct,="" investors="" will="" sell="" billabong="" stock,="" driving="" down="" the="" price.="" required="" return="" can="" also="" be="" used="" as="" an="" estimate="" of="" cost="" of="">

finance-bcs2-qa-recordingchat-hzkojebb.txt applying-capm-notes1-eusxku35.pptx topic-5b-risk-and-return-applications-jlvjr4aq.xlsx

Aklank · Accepted Answer

NPV is the easiest tool available to analyze the projects. If the NPV is positive, project will be accepted and if the NPV is negative, project will be rejected. For discounting all future cash flows, required rate of return will be used.
Major steps are taken to do NPV analysis as below:
· Calculation of revenues of the firm.
· Calculations of contribution margin by deduction of variable cost after adjusting the changes due to new scenario.
· Calculation of depreciation of the initial investment according to the feasible method.
·  Calculation of net profit after taxes. Some cases net profit are treated as cash flows
· Estimating free cash for of the projects.
· Calculating the present value of cash flows using the discount rate given.
· Calculation on NPV by summing all present cash flows.
· Making the investing decision using the NPV rule to invest in the project if NPV>0.
Differential risk can be incorporated into NPV analysis by increasing the discount rate for projects with higher risk factor. This will reduce the present value of cash inflows, therefore increasing risk & uncertainty. In addition, the cash flows can be decreased by introducing a percentage of "Uncollectibles" - for example, introducing an assumption that 2% of cash benefits will be uncollectible, will reduce the cash inflows present value.
If the projects under evaluation fall in different risk class, then discount rate used to calculate NPV is different for all projects. The discount rate is adjusted on the basis of inherent risk of the projects.

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