Topic: Net Present Value, Payback Value, Risk Adjusted Performance, Applying Risk Adjusted Measures

Question-1

Darn Co has undertaken market research at a cost of £200,000 in order to forecast the future cash flows of an investment project with an expected life of four years, as follows:

Year                                                    1                      2                      3                      4

Sales revenue (£000)                         1,250               2,570               6,890               4,530

Costs (£000)                                       500                  1,000               2,500               1,750

These forecast cash flows are before taking account of general inflation of 4.7% per year. The capital cost of the investment project, payable at the start of the first year, will be £2,000,000. The investment project will have zero scrap value at the end of the fourth year. The level of working capital investment at the start of each year is expected to be 10% of the sales revenue in that year.

Capital allowances would be available on the capital cost of the investment project on a 25% reducing balance basis. Darn Co pays tax on profits at an annual rate of 30% per year, with tax being paid one year in arrears. Darn Co has a nominal (money terms) after-tax cost of capital of 12% per year.

You are required to:

[word limit- 200 words, 10% +/-].

[Word limit- 300 words, 10% +/-]

Question 2

The goal of the investment companies (mutual fund investors) is to collect funds from the investors and then invest the money into the financial markets. (Bodie et al, 2010, pp 120) Investment brings risks such as stock market risk, currency and exchange risk, volatility risk etc. These risks are measured, and risk-adjusted returns are then, applied to individual securities, investment funds and portfolios.

[Word limit- 500 words 10% +/-]

[Word limit- 250 words 10% +/-]

Type of service-Academic paper writing
Type of assignment-Term Paper
Subject-Finance
Pages / words-3 / 1250
Academic level-Undergraduate
Paper format-Harvard
Line spacing-Single
Language style-UK English

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