Report On Perspective From Accounting And Finance
Payback Period Calculation
Discuss about the Report for Perspective from Accounting and Finance.
|
Calculation of Payback Period |
||||||
|
Particulars |
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
Free Cash Flow |
-48408000 |
6378571 |
20527571 |
15833571 |
15524571 |
19230571 |
|
Cumulative Cash Flow |
-48408000 |
-42029429 |
-21501857 |
-5668286 |
9856286 |
29086857 |
|
Payback Period |
4.365117049 |
Based on the above calculation, it can be said that the PBP (Payback Period) for the latest project is 4.36 years.
|
Particulars |
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
Discounted Cash Flow |
-48408000 |
5695153.06 |
16364454 |
11270023 |
9866145.8 |
10911942.7 |
|
Total Discounted Cash Flow |
54107719.2 |
|||||
|
Initial Investment |
48408000 |
|||||
|
Net Present Value |
5699719.202 |
|||||
|
Profitability Index |
1.118 |
From the particular above calculation, it can be said that the PI (profitability index) of the specified project is 1.118.
|
Particulars |
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
Discounted Cash Flow |
-48408000 |
5695153.06 |
16364454 |
11270023 |
9866145.8 |
10911942.7 |
|
IRR |
3.727% |
The IRR (Internal Rate of Return) for the specified project is 3.727%.
|
Calculation of Net Present Value:- |
||||||
|
Particulars |
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
Sales Revenue |
31040000 |
51410000 |
42195000 |
37830000 |
26190000 |
|
|
Variable Cost |
-13120000 |
-21730000 |
-17835000 |
-15990000 |
-11070000 |
|
|
Fixed Cost |
-5100000 |
-5100000 |
-5100000 |
-5100000 |
-5100000 |
|
|
Purchase of Manufacturing Equipment |
-34500000 |
|||||
|
Development Cost |
-7500000 |
|||||
|
Market Research |
-200000 |
|||||
|
Working Capital |
-6208000 |
|||||
|
Depreciation of Equipment |
-4928571 |
-4928571 |
-4928571 |
-4928571 |
-4928571 |
|
|
Net Income before Tax |
|
7891429 |
19651429 |
14331429 |
11811429 |
5091429 |
|
Less: Tax @ 30% |
-2367429 |
-5895429 |
-4299429 |
-3543429 |
-1527429 |
|
|
Net Operating Income after Tax |
|
5524000 |
13756000 |
10032000 |
8268000 |
3564000 |
|
Add: Depreciation on Equipment |
4928571 |
4928571 |
4928571 |
4928571 |
4928571 |
|
|
Less: Change in Working Capital |
-4074000 |
1843000 |
873000 |
2328000 |
5238000 |
|
|
Add: Estimated sale of Equipment |
5500000 |
|||||
|
Free Cash Flow |
-48408000 |
6378571 |
20527571 |
15833571 |
15524571 |
19230571 |
|
Required Rate of Return |
12% |
12% |
12% |
12% |
12% |
|
|
Discount Factor |
0.89285714 |
0.7971939 |
0.7117802 |
0.6355181 |
0.56742686 |
|
|
Discounted Cash Flow |
-48408000 |
5695153.06 |
16364454 |
11270023 |
9866145.8 |
10911942.7 |
|
Total Discounted Cash Flow |
54107719.2 |
|||||
|
|
||||||
|
Initial Investment |
48408000 |
|||||
|
Net Present Value |
5699719.202 |
It has been found that if the SP (selling price) is considered at low rates, then the NPV (Net Present Value) of the particular project will also decline consequently (Balakrishnan, Watts and Zuo 2013). Moreover, it has been noted that for elevated SP (selling prices), the NPV will also be elevated. The analysis of the same has been shown below:
|
Particulars |
Actual |
Option 1 |
Option 2 |
Option 3 |
Option 4 |
|
Unit Price ($) |
485 |
460.75 |
448.62 |
509.25 |
521.38 |
|
NPV |
5699719 |
1047685 |
-1278332 |
10351753 |
12677771 |
According to Brealey et al. (2012), if the selling price (SP) is equivalent and the volume of the sales becomes elevated than the estimated quantity of volume, the firm can earn higher amount of net present value from the specified project. On the other hand, if the sales volume is relatively lower, then, the net present value will get decreased consequently. The specified calculations are provided in the table below:
|
Particulars |
Actual |
Option 1 |
Option 2 |
Option 3 |
Option 4 |
|
Sales Volume |
389000 |
369550 |
359825 |
408450 |
418175 |
|
NPV |
5699719 |
3083819 |
1775869 |
8315619 |
9623569 |
Potentiality of the New Project:
Opined to Bebbington, Unerman and O’Dwyer (2014), when the net present value (NPV) of the project is considered as positive, a firm should take the project under consideration. Here, the organization Emu electronics should manufacture the smart phones as this will result into positive earnings. The reason behind this is that the calculated net present value is positive. Moreover, the payback period (PBP) of the particular project is also considered as attractive as the duration of the particular project for recovering the initial amount is relatively lesser.
Penalty for Loss on Other Models:
The loss takes place due to the decreased quantity of sale of the smart phone models that have been formerly launched is enclosed by the revenue that is generated by selling the new model of smart phones (Christensen et al. 2015). This new model of smart phone has been introduced into the market by the organization Emu Electronics. Thus, it can be said that if any loss takes place, then it will be enclosed by the due in order to sell the new model of the smart phones. In this circumstance, only the new smart phone model would be introduced into the market by the particular organization.
Profitability Index Calculation
|
Particulars |
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
|
Sales Volume (Unit) |
64000 |
106000 |
87000 |
78000 |
54000 |
|
|
Unit Price ($) |
485 |
485 |
485 |
485 |
485 |
|
|
Sales Revenue |
|
31040000 |
51410000 |
42195000 |
37830000 |
26190000 |
|
Variable Cost P.u. |
205 |
205 |
205 |
205 |
205 |
|
|
Total Variable Cost |
|
13120000 |
21730000 |
17835000 |
15990000 |
11070000 |
|
Total Fixed Cost |
|
5100000 |
5100000 |
5100000 |
5100000 |
5100000 |
|
Net Working Capital |
6208000 |
10282000 |
8439000 |
7566000 |
5238000 |
|
|
Change in Net Working Capital |
|
4074000 |
-1843000 |
-873000 |
-2328000 |
-5238000 |
According to the Annual Report of the company “Harvey Norman” for the year 2015, the value of the accounts book of the equity of the particular organization is $ 2556.86 million as on June 30 of the year 2015.
Moreover, for the year 2015, the annual report of the particular organization exhibits that as on June 30 of the year, 2016, the specified firm has the total liability of an amount of $ 1511.912 million. However, it has been found that out of this total amount of $ 1511.912 million, $ 688.556 million are considered as an “interest bearing amount” in nature (www.harveynormanholdings.com.au, 2016).
The price of Harvey Norman stock on 5th of October in the year 2016 is AU $ 4.957.
The market capitalization or the market value of equity of the firm Harvey Norman as on 5th of Octobetr in the year 2016 is AU$5.80 billion (Damodaran 2016)
Moreover, on 5th of October in the year 2016, the firm Harvey Norman has about 1113.24376 million outstanding stocks (Au.finance.yahoo.com, 2016).
The most current dividend that is paid by the firm “Harvey Norman” once in a year was an amount of $ 0.185 as on 7th of April in the year 2016.
According to the “dividend discount model” one can use the data for calculating the present market value of the stock price of the organization “Harvey Norman” with the assistance of the “Growth Rate”. It is designed under the “CAGR Model” and the needed return rate by using the method “CAPM” (Deegan 2012).
The Beta of the company “Harvey Norman” has been calculated as follows:
|
|
Harvey Norman |
S&P 500 Index |
||
|
Date |
Adj Closing Price |
Return |
Adj Closing Price |
Return |
|
10/5/2015 |
3.42291 |
1987.050049 |
||
|
10/6/2015 |
3.4317 |
0.26% |
1979.920044 |
-0.36% |
|
10/7/2015 |
3.4757 |
1.28% |
1995.829956 |
0.80% |
|
10/8/2015 |
3.4845 |
0.25% |
2013.430054 |
0.88% |
|
10/9/2015 |
3.5021 |
0.51% |
2014.890015 |
0.07% |
|
10/12/2015 |
3.4581 |
-1.26% |
2017.459961 |
0.13% |
|
10/13/2015 |
3.36131 |
-2.80% |
2003.689941 |
-0.68% |
|
10/14/2015 |
3.41411 |
1.57% |
1994.23999 |
-0.47% |
|
10/15/2015 |
3.39651 |
-0.52% |
2023.859985 |
1.49% |
|
10/16/2015 |
3.39651 |
0.00% |
2033.109985 |
0.46% |
|
10/19/2015 |
3.33491 |
-1.81% |
2033.660034 |
0.03% |
|
10/20/2015 |
3.30852 |
-0.79% |
2030.77002 |
-0.14% |
|
10/21/2015 |
3.29092 |
-0.53% |
2018.939941 |
-0.58% |
|
10/22/2015 |
3.29972 |
0.27% |
2052.51001 |
1.66% |
|
10/23/2015 |
3.35251 |
1.60% |
2075.149902 |
1.10% |
|
10/26/2015 |
3.39651 |
1.31% |
2071.179932 |
-0.19% |
|
10/27/2015 |
3.5021 |
3.11% |
2065.889893 |
-0.26% |
|
10/28/2015 |
3.64289 |
4.02% |
2090.350098 |
1.18% |
|
10/29/2015 |
3.66771 |
0.68% |
2089.409912 |
-0.04% |
|
10/30/2015 |
3.64027 |
-0.75% |
2079.360107 |
-0.48% |
|
11/2/2015 |
3.62198 |
-0.50% |
2104.050049 |
1.19% |
|
11/3/2015 |
3.61283 |
-0.25% |
2109.790039 |
0.27% |
|
11/4/2015 |
3.64027 |
0.76% |
2102.310059 |
-0.35% |
|
11/5/2015 |
3.55796 |
-2.26% |
2099.929932 |
-0.11% |
|
11/6/2015 |
3.65857 |
2.83% |
2099.199951 |
-0.03% |
|
11/9/2015 |
3.57625 |
-2.25% |
2078.580078 |
-0.98% |
|
11/10/2015 |
3.50308 |
-2.05% |
2081.719971 |
0.15% |
|
11/11/2015 |
3.47564 |
-0.78% |
2075 |
-0.32% |
|
11/12/2015 |
3.58539 |
3.16% |
2045.969971 |
-1.40% |
|
11/13/2015 |
3.51222 |
-2.04% |
2023.040039 |
-1.12% |
|
11/16/2015 |
3.41161 |
-2.86% |
2053.189941 |
1.49% |
|
11/17/2015 |
3.48478 |
2.14% |
2050.439941 |
-0.13% |
|
11/18/2015 |
3.51222 |
0.79% |
2083.580078 |
1.62% |
|
11/19/2015 |
3.63113 |
3.39% |
2081.23999 |
-0.11% |
|
11/20/2015 |
3.7043 |
2.02% |
2089.169922 |
0.38% |
|
11/23/2015 |
3.7043 |
0.00% |
2086.590088 |
-0.12% |
|
11/24/2015 |
3.7043 |
0.00% |
2089.139893 |
0.12% |
|
11/25/2015 |
3.7043 |
0.00% |
2088.870117 |
-0.01% |
|
11/27/2015 |
3.71344 |
0.25% |
2090.110107 |
0.06% |
|
11/30/2015 |
3.73174 |
0.49% |
2080.409912 |
-0.46% |
|
12/1/2015 |
3.79576 |
1.72% |
2102.629883 |
1.07% |
|
12/2/2015 |
3.71344 |
-2.17% |
2079.51001 |
-1.10% |
|
12/3/2015 |
3.67686 |
-0.99% |
2049.620117 |
-1.44% |
|
12/4/2015 |
3.64027 |
-1.00% |
2091.689941 |
2.05% |
|
12/7/2015 |
3.62198 |
-0.50% |
2077.070068 |
-0.70% |
|
12/8/2015 |
3.64942 |
0.76% |
2063.590088 |
-0.65% |
|
12/9/2015 |
3.65857 |
0.25% |
2047.619995 |
-0.77% |
|
12/10/2015 |
3.61283 |
-1.25% |
2052.22998 |
0.23% |
|
12/11/2015 |
3.60369 |
-0.25% |
2012.369995 |
-1.94% |
|
12/14/2015 |
3.50308 |
-2.79% |
2021.939941 |
0.48% |
|
12/15/2015 |
3.45735 |
-1.31% |
2043.410034 |
1.06% |
|
12/16/2015 |
3.51222 |
1.59% |
2073.070068 |
1.45% |
|
12/17/2015 |
3.55796 |
1.30% |
2041.890015 |
-1.50% |
|
12/18/2015 |
3.63113 |
2.06% |
2005.550049 |
-1.78% |
|
12/21/2015 |
3.65857 |
0.76% |
2021.150024 |
0.78% |
|
12/22/2015 |
3.74088 |
2.25% |
2038.969971 |
0.88% |
|
12/23/2015 |
3.73174 |
-0.24% |
2064.290039 |
1.24% |
|
12/24/2015 |
3.68601 |
-1.23% |
2060.98999 |
-0.16% |
|
12/28/2015 |
3.68601 |
0.00% |
2056.5 |
-0.22% |
|
12/29/2015 |
3.86893 |
4.96% |
2078.360107 |
1.06% |
|
12/30/2015 |
3.91467 |
1.18% |
2063.360107 |
-0.72% |
|
12/31/2015 |
3.8232 |
-2.34% |
2043.939941 |
-0.94% |
|
1/4/2016 |
3.96954 |
3.83% |
2012.660034 |
-1.53% |
|
1/5/2016 |
3.94211 |
-0.69% |
2016.709961 |
0.20% |
|
1/6/2016 |
3.86893 |
-1.86% |
1990.26001 |
-1.31% |
|
1/7/2016 |
3.81406 |
-1.42% |
1943.089966 |
-2.37% |
|
1/8/2016 |
3.80491 |
-0.24% |
1922.030029 |
-1.08% |
|
1/11/2016 |
3.85979 |
1.44% |
1923.670044 |
0.09% |
|
1/12/2016 |
3.81406 |
-1.18% |
1938.680054 |
0.78% |
|
1/13/2016 |
3.99698 |
4.80% |
1890.280029 |
-2.50% |
|
1/14/2016 |
3.8232 |
-4.35% |
1921.839966 |
1.67% |
|
1/15/2016 |
3.86893 |
1.20% |
1880.329956 |
-2.16% |
|
1/19/2016 |
3.92381 |
1.42% |
1881.329956 |
0.05% |
|
1/20/2016 |
3.92381 |
0.00% |
1859.329956 |
-1.17% |
|
1/21/2016 |
3.96954 |
1.17% |
1868.98999 |
0.52% |
|
1/22/2016 |
3.99698 |
0.69% |
1906.900024 |
2.03% |
|
1/25/2016 |
4.03357 |
0.92% |
1877.079956 |
-1.56% |
|
1/26/2016 |
4.03357 |
0.00% |
1903.630005 |
1.41% |
|
1/27/2016 |
3.98784 |
-1.13% |
1882.949951 |
-1.09% |
|
1/28/2016 |
3.97869 |
-0.23% |
1893.359985 |
0.55% |
|
1/29/2016 |
4.06101 |
2.07% |
1940.23999 |
2.48% |
|
2/1/2016 |
4.11589 |
1.35% |
1939.380005 |
-0.04% |
|
2/2/2016 |
4.00613 |
-2.67% |
1903.030029 |
-1.87% |
|
2/3/2016 |
3.85979 |
-3.65% |
1912.530029 |
0.50% |
|
2/4/2016 |
3.93296 |
1.90% |
1915.449951 |
0.15% |
|
2/5/2016 |
3.92381 |
-0.23% |
1880.050049 |
-1.85% |
|
2/8/2016 |
3.9604 |
0.93% |
1853.439941 |
-1.42% |
|
2/9/2016 |
3.99698 |
0.92% |
1852.209961 |
-0.07% |
|
2/10/2016 |
3.99698 |
0.00% |
1851.859985 |
-0.02% |
|
2/11/2016 |
4.02442 |
0.69% |
1829.079956 |
-1.23% |
|
2/12/2016 |
3.99698 |
-0.68% |
1864.780029 |
1.95% |
|
2/16/2016 |
4.05186 |
1.37% |
1895.579956 |
1.65% |
|
2/17/2016 |
4.10674 |
1.35% |
1926.819946 |
1.65% |
|
2/18/2016 |
4.28052 |
4.23% |
1917.829956 |
-0.47% |
|
2/19/2016 |
4.24394 |
-0.85% |
1917.780029 |
0.00% |
|
2/22/2016 |
4.28052 |
0.86% |
1945.5 |
1.45% |
|
2/23/2016 |
4.2165 |
-1.50% |
1921.27002 |
-1.25% |
|
2/24/2016 |
4.17077 |
-1.08% |
1929.800049 |
0.44% |
|
2/25/2016 |
4.2165 |
1.10% |
1951.699951 |
1.13% |
|
2/26/2016 |
4.14333 |
-1.74% |
1948.050049 |
-0.19% |
|
2/29/2016 |
4.37199 |
5.52% |
1932.22998 |
-0.81% |
|
3/1/2016 |
4.4543 |
1.88% |
1978.349976 |
2.39% |
|
3/2/2016 |
4.40857 |
-1.03% |
1986.449951 |
0.41% |
|
3/3/2016 |
4.43601 |
0.62% |
1993.400024 |
0.35% |
|
3/4/2016 |
4.39028 |
-1.03% |
1999.98999 |
0.33% |
|
3/7/2016 |
4.31711 |
-1.67% |
2001.76001 |
0.09% |
|
3/8/2016 |
4.31711 |
0.00% |
1979.26001 |
-1.12% |
|
3/9/2016 |
4.34455 |
0.64% |
1989.26001 |
0.51% |
|
3/10/2016 |
4.34455 |
0.00% |
1989.569946 |
0.02% |
|
3/11/2016 |
4.34455 |
0.00% |
2022.189941 |
1.64% |
|
3/14/2016 |
4.32625 |
-0.42% |
2019.640015 |
-0.13% |
|
3/15/2016 |
4.27138 |
-1.27% |
2015.930054 |
-0.18% |
|
3/16/2016 |
4.23479 |
-0.86% |
2027.219971 |
0.56% |
|
3/17/2016 |
4.28967 |
1.30% |
2040.589966 |
0.66% |
|
3/18/2016 |
4.27138 |
-0.43% |
2049.580078 |
0.44% |
|
3/21/2016 |
4.24394 |
-0.64% |
2051.600098 |
0.10% |
|
3/22/2016 |
4.28967 |
1.08% |
2049.800049 |
-0.09% |
|
3/23/2016 |
4.28967 |
0.00% |
2036.709961 |
-0.64% |
|
3/24/2016 |
4.28967 |
0.00% |
2035.939941 |
-0.04% |
|
3/28/2016 |
4.28967 |
0.00% |
2037.050049 |
0.05% |
|
3/29/2016 |
4.24394 |
-1.07% |
2055.01001 |
0.88% |
|
3/30/2016 |
4.30796 |
1.51% |
2063.949951 |
0.44% |
|
3/31/2016 |
4.29882 |
-0.21% |
2059.73999 |
-0.20% |
|
4/1/2016 |
4.16162 |
-3.19% |
2072.780029 |
0.63% |
|
4/4/2016 |
4.2165 |
1.32% |
2066.129883 |
-0.32% |
|
4/5/2016 |
4.13418 |
-1.95% |
2045.170044 |
-1.01% |
|
4/6/2016 |
4.18906 |
1.33% |
2066.659912 |
1.05% |
|
4/7/2016 |
4.18497 |
-0.10% |
2041.910034 |
-1.20% |
|
4/8/2016 |
4.15637 |
-0.68% |
2047.599976 |
0.28% |
|
4/11/2016 |
4.10871 |
-1.15% |
2041.98999 |
-0.27% |
|
4/12/2016 |
4.16591 |
1.39% |
2061.719971 |
0.97% |
|
4/13/2016 |
4.12777 |
-0.92% |
2082.419922 |
1.00% |
|
4/14/2016 |
4.15637 |
0.69% |
2082.780029 |
0.02% |
|
4/15/2016 |
4.24217 |
2.06% |
2080.72998 |
-0.10% |
|
4/18/2016 |
4.20404 |
-0.90% |
2094.340088 |
0.65% |
|
4/19/2016 |
4.14684 |
-1.36% |
2100.800049 |
0.31% |
|
4/20/2016 |
4.11824 |
-0.69% |
2102.399902 |
0.08% |
|
4/21/2016 |
4.08011 |
-0.93% |
2091.47998 |
-0.52% |
|
4/22/2016 |
4.08011 |
0.00% |
2091.580078 |
0.00% |
|
4/25/2016 |
4.08011 |
0.00% |
2087.790039 |
-0.18% |
|
4/26/2016 |
4.09918 |
0.47% |
2091.699951 |
0.19% |
|
4/27/2016 |
4.15637 |
1.40% |
2095.149902 |
0.16% |
|
4/28/2016 |
4.2517 |
2.29% |
2075.810059 |
-0.92% |
|
4/29/2016 |
4.27077 |
0.45% |
2065.300049 |
-0.51% |
|
5/2/2016 |
4.28984 |
0.45% |
2081.429932 |
0.78% |
|
5/3/2016 |
4.44236 |
3.56% |
2063.370117 |
-0.87% |
|
5/4/2016 |
4.50909 |
1.50% |
2051.120117 |
-0.59% |
|
5/5/2016 |
4.48049 |
-0.63% |
2050.629883 |
-0.02% |
|
5/6/2016 |
4.51863 |
0.85% |
2057.139893 |
0.32% |
|
5/9/2016 |
4.51863 |
0.00% |
2058.689941 |
0.08% |
|
5/10/2016 |
4.48049 |
-0.84% |
2084.389893 |
1.25% |
|
5/11/2016 |
4.46143 |
-0.43% |
2064.459961 |
-0.96% |
|
5/12/2016 |
4.44236 |
-0.43% |
2064.110107 |
-0.02% |
|
5/13/2016 |
4.44236 |
0.00% |
2046.609985 |
-0.85% |
|
5/16/2016 |
4.49003 |
1.07% |
2066.659912 |
0.98% |
|
5/17/2016 |
4.47096 |
-0.42% |
2047.209961 |
-0.94% |
|
5/18/2016 |
4.3375 |
-2.99% |
2047.630005 |
0.02% |
|
5/19/2016 |
4.3661 |
0.66% |
2040.040039 |
-0.37% |
|
5/20/2016 |
4.44236 |
1.75% |
2052.320068 |
0.60% |
|
5/23/2016 |
4.3375 |
-2.36% |
2048.040039 |
-0.21% |
|
5/24/2016 |
4.32797 |
-0.22% |
2076.060059 |
1.37% |
|
5/25/2016 |
4.38516 |
1.32% |
2090.540039 |
0.70% |
|
5/26/2016 |
4.3375 |
-1.09% |
2090.100098 |
-0.02% |
|
5/27/2016 |
4.3089 |
-0.66% |
2099.060059 |
0.43% |
|
5/31/2016 |
4.34703 |
0.88% |
2096.949951 |
-0.10% |
|
6/1/2016 |
4.3089 |
-0.88% |
2099.330078 |
0.11% |
|
6/2/2016 |
4.21357 |
-2.21% |
2105.26001 |
0.28% |
|
6/3/2016 |
4.21357 |
0.00% |
2099.129883 |
-0.29% |
|
6/6/2016 |
4.20404 |
-0.23% |
2109.409912 |
0.49% |
|
6/7/2016 |
4.23264 |
0.68% |
2112.129883 |
0.13% |
|
6/8/2016 |
4.2803 |
1.13% |
2119.120117 |
0.33% |
|
6/9/2016 |
4.34703 |
1.56% |
2115.47998 |
-0.17% |
|
6/10/2016 |
4.34703 |
0.00% |
2096.070068 |
-0.92% |
|
6/13/2016 |
4.34703 |
0.00% |
2079.060059 |
-0.81% |
|
6/14/2016 |
4.3089 |
-0.88% |
2075.320068 |
-0.18% |
|
6/15/2016 |
4.28984 |
-0.44% |
2071.5 |
-0.18% |
|
6/16/2016 |
4.32797 |
0.89% |
2077.98999 |
0.31% |
|
6/17/2016 |
4.3375 |
0.22% |
2071.219971 |
-0.33% |
|
6/20/2016 |
4.34703 |
0.22% |
2083.25 |
0.58% |
|
6/21/2016 |
4.41376 |
1.54% |
2088.899902 |
0.27% |
|
6/22/2016 |
4.38516 |
-0.65% |
2085.449951 |
-0.17% |
|
6/23/2016 |
4.3947 |
0.22% |
2113.320068 |
1.34% |
|
6/24/2016 |
4.2517 |
-3.25% |
2037.410034 |
-3.59% |
|
6/27/2016 |
4.2803 |
0.67% |
2000.540039 |
-1.81% |
|
6/28/2016 |
4.14684 |
-3.12% |
2036.089966 |
1.78% |
|
6/29/2016 |
4.2517 |
2.53% |
2070.77002 |
1.70% |
|
6/30/2016 |
4.3947 |
3.36% |
2098.860107 |
1.36% |
|
7/1/2016 |
4.3375 |
-1.30% |
2102.949951 |
0.19% |
|
7/5/2016 |
4.18497 |
-3.52% |
2088.550049 |
-0.68% |
|
7/6/2016 |
4.12777 |
-1.37% |
2099.72998 |
0.54% |
|
7/7/2016 |
4.13731 |
0.23% |
2097.899902 |
-0.09% |
|
7/8/2016 |
4.15637 |
0.46% |
2129.899902 |
1.53% |
|
7/11/2016 |
4.2231 |
1.61% |
2137.159912 |
0.34% |
|
7/12/2016 |
4.20404 |
-0.45% |
2152.139893 |
0.70% |
|
7/13/2016 |
4.15637 |
-1.13% |
2152.429932 |
0.01% |
|
7/14/2016 |
4.21357 |
1.38% |
2163.75 |
0.53% |
|
7/15/2016 |
4.20404 |
-0.23% |
2161.73999 |
-0.09% |
|
7/18/2016 |
4.21357 |
0.23% |
2166.889893 |
0.24% |
|
7/19/2016 |
4.2231 |
0.23% |
2163.780029 |
-0.14% |
|
7/20/2016 |
4.29937 |
1.81% |
2173.02002 |
0.43% |
|
7/21/2016 |
4.40423 |
2.44% |
2165.169922 |
-0.36% |
|
7/22/2016 |
4.35657 |
-1.08% |
2175.030029 |
0.46% |
|
7/25/2016 |
4.41376 |
1.31% |
2168.47998 |
-0.30% |
|
7/26/2016 |
4.46143 |
1.08% |
2169.179932 |
0.03% |
|
7/27/2016 |
4.47096 |
0.21% |
2166.580078 |
-0.12% |
|
7/28/2016 |
4.52816 |
1.28% |
2170.060059 |
0.16% |
|
7/29/2016 |
4.61396 |
1.89% |
2173.600098 |
0.16% |
|
8/1/2016 |
4.59489 |
-0.41% |
2170.840088 |
-0.13% |
|
8/2/2016 |
4.58536 |
-0.21% |
2157.030029 |
-0.64% |
|
8/3/2016 |
4.48049 |
-2.29% |
2163.790039 |
0.31% |
|
8/4/2016 |
4.43283 |
-1.06% |
2164.25 |
0.02% |
|
8/5/2016 |
4.49003 |
1.29% |
2182.870117 |
0.86% |
|
8/8/2016 |
4.59489 |
2.34% |
2180.889893 |
-0.09% |
|
8/9/2016 |
4.61396 |
0.42% |
2181.73999 |
0.04% |
|
8/10/2016 |
4.65209 |
0.83% |
2175.48999 |
-0.29% |
|
8/11/2016 |
4.78555 |
2.87% |
2185.790039 |
0.47% |
|
8/12/2016 |
4.91901 |
2.79% |
2184.050049 |
-0.08% |
|
8/15/2016 |
5.03341 |
2.33% |
2190.149902 |
0.28% |
|
8/16/2016 |
4.93808 |
-1.89% |
2178.149902 |
-0.55% |
|
8/17/2016 |
4.95714 |
0.39% |
2182.219971 |
0.19% |
|
8/18/2016 |
4.93808 |
-0.38% |
2187.02002 |
0.22% |
|
8/19/2016 |
4.89995 |
-0.77% |
2183.870117 |
-0.14% |
|
8/22/2016 |
4.93808 |
0.78% |
2182.639893 |
-0.06% |
|
8/23/2016 |
4.98574 |
0.97% |
2186.899902 |
0.20% |
|
8/24/2016 |
4.97621 |
-0.19% |
2175.439941 |
-0.52% |
|
8/25/2016 |
5.0906 |
2.30% |
2172.469971 |
-0.14% |
|
8/26/2016 |
5.05247 |
-0.75% |
2169.040039 |
-0.16% |
|
8/29/2016 |
5.08107 |
0.57% |
2180.379883 |
0.52% |
|
8/30/2016 |
4.99527 |
-1.69% |
2176.120117 |
-0.20% |
|
8/31/2016 |
5.12874 |
2.67% |
2170.949951 |
-0.24% |
|
9/1/2016 |
5.08107 |
-0.93% |
2170.860107 |
0.00% |
|
9/2/2016 |
5.06201 |
-0.38% |
2179.97998 |
0.42% |
|
9/6/2016 |
5.08107 |
0.38% |
2186.47998 |
0.30% |
|
9/7/2016 |
5.05247 |
-0.56% |
2186.159912 |
-0.01% |
|
9/8/2016 |
4.96668 |
-1.70% |
2181.300049 |
-0.22% |
|
9/9/2016 |
4.96668 |
0.00% |
2127.810059 |
-2.45% |
|
9/12/2016 |
4.81415 |
-3.07% |
2159.040039 |
1.47% |
|
9/13/2016 |
4.80462 |
-0.20% |
2127.02002 |
-1.48% |
|
9/14/2016 |
4.86181 |
1.19% |
2125.77002 |
-0.06% |
|
9/15/2016 |
4.88088 |
0.39% |
2147.26001 |
1.01% |
|
9/16/2016 |
4.95714 |
1.56% |
2139.159912 |
-0.38% |
|
9/19/2016 |
4.87135 |
-1.73% |
2139.120117 |
0.00% |
|
9/20/2016 |
4.87135 |
0.00% |
2139.76001 |
0.03% |
|
9/21/2016 |
4.90948 |
0.78% |
2163.120117 |
1.09% |
|
9/22/2016 |
4.94761 |
0.78% |
2177.179932 |
0.65% |
|
9/23/2016 |
4.94761 |
0.00% |
2164.689941 |
-0.57% |
|
9/26/2016 |
4.93808 |
-0.19% |
2146.100098 |
-0.86% |
|
9/27/2016 |
4.95714 |
0.39% |
2159.929932 |
0.64% |
|
9/28/2016 |
4.94761 |
-0.19% |
2171.370117 |
0.53% |
|
9/29/2016 |
4.98574 |
0.77% |
2151.129883 |
-0.93% |
|
9/30/2016 |
4.95714 |
-0.57% |
2168.27002 |
0.80% |
|
10/3/2016 |
5.06201 |
2.12% |
2161.199951 |
-0.33% |
|
10/4/2016 |
4.97621 |
-1.69% |
2150.48999 |
-0.50% |
|
10/5/2016 |
4.95714 |
-0.38% |
2159.72998 |
0.43% |
|
Beta |
|
0.07178 |
The yield rate on the debt of government is amounted to be 4.50% (Edwards 2013).
The equity cost of the organization Harvey Norman has been calculated by using the method CAPM in the table below:
|
Market Return Rate |
|
7.84% |
|
Risk Free Rate of Return |
4.50% |
|
|
Risk Premium |
3.32% |
|
|
Beta |
0.0717797 |
|
|
Expected Rate of Return |
4.74% |
The “weighted average cost of debt” for the firm Harvey Norman has been calculated by using both the market and book value in the table below:
|
Calculation for Cost of Debt:- |
||||||
|
|
Book Value |
Market Value |
|
|
Book Value |
Market Value |
|
Type of Debts |
Cost of Debts |
Cost of Debts |
Amount |
Weight |
Weighted Rate |
Weighted Rate |
|
Borrowings |
5.93% |
6.35% |
561808 |
81.59% |
4.84% |
5.18% |
|
Other Loans |
4.22% |
5.47% |
89928 |
13.06% |
0.55% |
0.71% |
|
Bank Overdraft |
6.68% |
7.17% |
32620 |
4.74% |
0.32% |
0.34% |
|
Financial Lease |
9.50% |
5.19% |
139 |
0.02% |
0.002% |
0.001% |
|
Other Financial Liabilities |
5.54% |
5.19% |
4061 |
0.59% |
0.033% |
0.031% |
|
Total |
|
|
688556 |
100% |
5.74% |
6.27% |
The weighted average cost of debt is considered as a different factor, especially, when the rate of interest is used according to the market and book value (Gitman and Zutter 2012). The rates of the book value of the firm have been used but this would not be able to prepare any true claim regarding the monetary outstanding. On the other hand, as per Asx.com.au (2016) the market value organizes the accurate financial claim.
IRR Calculation
The market value that is used for calculating ‘weighted average cost of capital’ is equivalent to 4.51 % (Hribar, Kravet and Wilson 2014). Moreover, based on the book value, it can be said that the “weighted average cost of capital” is 4.27%. The particular calculations are as follows:
|
Calculation of Weighted Cost of Capital:- |
|||||||
|
|
|
Book Value |
Market Value |
|
|
Book Value |
Market Value |
|
Particulars |
Amount |
Cost |
Cost |
Weight |
Tax Rate |
Weighted Rate |
Weighted Rate |
|
Equity |
380328 |
4.74% |
4.74% |
36% |
30% |
4.27% |
4.51% |
|
Debt |
688556 |
5.74% |
6.27% |
64% |
30% |
||
|
Total |
1068884 |
|
|
|
|
4.27% |
4.51% |
When the “cost of capital” is deliberated by using the market value, the value that is determined out is considered as more pertinent. The particular value is more authentic as the present circumstance is to depict the data from this rate (Johnson and Noguera 2012). This might be of great use for both the shareholders and the investors of the particular organization, who are eager to make investment within the organization.
The organization that generally uses the “pure play approach” for identifying the estimated cost of capital might come up with different issues (Mintz 2016). The particular reason behind this is that the definite investment that is made by the firm would not be able to scrutinize. The organization uses the estimated value of the beta by using the particular firm that can be contrasted to the provided organization by utilizing the “pure play approach”. The company return is studied by using this specified approach that would not be able to scrutinize the investment return. The firm’s beta cannot be calculated in a straight method. The true value of this investment might not be obtained from the particular “pure play approach”. The cause is that the substitute values are utilized for identifying the return from the investments and the situation might also be dissimilar especially when it is included within the real line of business (Weil, Schipper and Francis 2013). Thus, the true worth of the particular investment that is made along with the return that is developed might not be replicated by using the true worth.
References
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