Calculate the internal rate of return

Assignment Help Financial Management
Reference no: EM1381391 , Length: 3000 words

Question 1

The following are the financial statements for Hugo Boss Group for the financial years ending 2012 and 2011.

2491_Calculate the Internal Rate of return.png

1009_Calculate the Internal Rate of return1.png

Requirements

a) Using the financial statements above (relating to 2012 and 2011), you are required to calculate a series of appropriate ratios relating to liquidity, profitability, efficiency and investment.

b) Analyse the ratios you calculated above, and give an interpretation of the company's performance over these two years in terms of liquidity, profitability, efficiency and investment.

c) Identify each of the stakeholders who may be associated with the Hugo Boss Group, and comment on how each perceive the Hugo Boss Group to be performing using both the ratio analysis above and also any additional publicly available information regarding the Hugo Boss Group, their competitors, the industry or the economy.


Question 2

Viola Ltd is considering 2 potential new investments to enhance its manufacturing plant. These are mutually exclusive options in that the acceptance of any one investment would prevent investment in the other. The organisation uses a net present value (NPV) approach to such decisions and uses its weighted average cost of capital (WACC) as the discount factor within the model.

Currently Viola Ltd has 150,000 x £1 Ordinary shares and £300,000 of debt. The Ordinary Shareholders expect a yield of 6% and the after-tax cost of debt is 9%.

Details of the two investments in the plant enhancement are as follows:

Investment A has an immediate cash outflow of £450,000 and this would be followed by cash inflows of £120,000 year 1, £120,000 year 2, £120,000 year 3 and £200,000 year 4.

Investment B has an immediate cash outflow of £450,000 and this would be followed by cash inflows of £150,000 year 1, £90,000 year 2, £90,000 year 3 and £200,000 year 4.

Assume, for purposes of this case, that the annual cash inflows equate to taxable profits before capital allowances

For both investments, the initial outflow of £450,000 attracts a first year taxation capital allowance of 25% based on the initial investment amount, followed by writing down allowances of 25% of the tax written down value for years 2 and 3. As the investment will be disposed of at the end of year 4 with a nil residual value, the capital allowance to be claimed in year 4 will therefore be a balancing allowance which will reduce the taxation written down value to zero.

[For example if the initial investment had been £100,000, then capital allowances to be claimed would have been £25,000 in year 1, £18,750 for year 2, £14,063 for year 3 and a balancing allowance of £42,188.]

The capital allowances available are offset against taxable profits in each year.

Viola Ltd pays corporation tax at the rate of 22% of its taxable profits after allowing for capital allowances (where applicable). Assume that taxation in respect of year one profits is paid at the end of year two.

Requirements

a) Calculate the net present values and undiscounted and discounted payback periods of each of the proposed investments and recommend which of the two, if any, should be selected. Give detailed reasons for your recommendation.

b) Calculate the Internal Rate of return for both projects and again recommend which of the two projects, if any, should be selected based on this information.

c) Critically analyse the pitfalls / weaknesses of the techniques adopted in parts a and b, and explain why these techniques are still actively used by companies despite these disadvantages, using academic materials to support your discussions.

Question 3

"In recent years, a few businesses have abandoned budgeting, although they still recognize the need for forward planning. No one seriously doubts that there must be appropriate systems in place to steer a business towards its objectives. It is claimed, however, that the systems adopted should reflect a broader, more integrated approach to planning. The new systems that have been implemented are often based around a ‘leaner' financial planning process that is more closely linked to other measurement and reward systems. "

Requirements

Given the sentiment of the quotation above critically discuss the shortcomings of the traditional budgeting technique. Consider how Beyond Budgeting has attempted to address these pitfalls, and comment on whether you believe it to have succeeded.

Referencing style: Harvard style of referencing

Reference no: EM1381391

Questions Cloud

Recombination frequency between genes : About how long is a DN A double helix that is made up of 900 base pairs? Suppose that genes A, B, C, and D are located on the same chromosome.
What is your understanding of global competency : What is your understanding of global competency? How does global competency affect international human resource management?
Many profit-making firms have a strategy map that is tied : Many profit-making firms have a strategy map that is tied to four elements: financial results, customers, human resources, and sustainability. If you developed a scorecard that included these areas
Why do you think that wal-mart had so many events : Why do you think that Wal-Mart had so many events that caused its image to be tarnished? If Wal-Mart saves families thousands of dollars a year, why should it be responsible to other stakeholders?
Calculate the internal rate of return : Calculate the Internal Rate of return for both projects and again recommend which of the two projects, if any, should be selected based on this information.
Fossil with .9983 in africa : Fossil with .9983 (Ur:Pb) in Africa
Determine possible dna sequences : Determine the possible DNA sequences that produced the four amino acids in the molecules
Describe the steps you would take to assemble a project team : Groups mature over time, increasing their effectiveness and productivity. How would you describe the stages of group development, and what do you feel is the responsibility of a project team leader in fostering group development
Estimating diffusivity of solutes in a liquid : Determining Diffusivity of Solutes in a Liquid Compute the diffusion coefficient of a protein macromolecule bovine scrum albumin (BSA) at 23degreeC.

Reviews

Write a Review

 

Financial Management Questions & Answers

  Problem on financial management

Problem on financial management.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  What is a ruined cost

What is a ruined cost. Why is it important to understand this concept when analyzing capital projects

  Variable costing income statement and absorption statement

For month ended 6/30/X1, there were 1,531 of direct labor hours incurred - Explain how would I begin creating a variable costing income statement and absorption statement?

  Make an assessment of where your company stands right now

Company: Manpower Group IncTicker Symbol: MAN (United States),  Make an assessment of where your company stands right now, what it does well, what it does badly, and what you would change about it.

  Develop a financial analysis

Develop a financial analysis

  Requirement for a code of ethics in the civil service

Requirement for a Code of Ethics in the Civil Service

  Calculate the minimum variance and optimal portfolio

Create a model that will automatically calculate the minimum variance and optimal portfolio as well as be able to draw the efficient frontier for a 3 risky asset portfolio.

  Find the annual withdrawal

Find the Annual withdrawal

  Describe concept of future value and present value

Describe concept of future value and present value

  Financial index and commodity index

What do you mean by Financial index and commodity index?

  Justify and criticize the usual assumption made

Justify and criticize the usual assumption made in financial management literature that the objective of a company is to maximize the wealth of its shareholders.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd