Financial Calculations And Investment Analysis: Theory And Practice
- December 21, 2023/ Uncategorized
Loan Payments and Interest Rates
|
Particulars |
Amount |
|
Total interest rate |
8%/12 = 0.67% |
|
Amount for loan |
$20,000,000.00 |
|
Time |
10 * 12 = 120 |
|
Total monthly payments |
$ 242,655.19 |
|
Particulars |
Amount |
|
Total interest rate |
8%/12 = 0.67% |
|
Amount for loan |
$ 20,000,000.00 |
|
Interest Payment 1st year |
$ 133,333.33 |
|
Particulars |
Amount |
|
Interest Payment 1st year |
$ 133,333.33 |
|
Total monthly payments |
$ 242,655.19 |
|
Principal Payment 1st year |
$ 109,321.86 |
|
Particulars |
Amount |
|
Total monthly payments |
$ 242,655.19 |
|
Total interest rate |
8%/12 = 0.67% |
|
Time |
7 * 12 = 84 |
|
Amount owed (Loan) |
$ 15,568,577.62 |
|
Particulars |
Amount |
|
Amount owed (Loan) |
$ 15,568,577.62 |
|
Cost for Refinance |
$250,000 |
|
Total interest rate |
7%/12 = 0.58% |
|
Tenure |
7 * 12 = 84 |
|
Monthly instalments |
$ 242,655.19 |
|
Loan payments (Monthly) |
$234,971.56 |
|
Difference in payments |
$7,683.63 |
|
Particulars |
Amount |
|
Difference in payments |
$7,683.63 |
|
Rate |
7%/12 = 0.58% |
|
Time |
7 * 12 = 84 |
|
Present value of difference in payments |
$ 509,096.39 |
|
Particulars |
Amount |
|
Amount for loan |
$20,000,000.00 |
|
Actual building value |
$ 25,000,000.00 |
|
Interest rate |
8%/4 = 2.00% |
|
Time |
10*4 = 40 |
|
Payments in quarterly |
$731,115.96 |
|
Particulars |
Amount |
|
Payments in quarterly |
$731,115.96 |
|
Time |
7*4 = 28 |
|
Interest rate |
8%/4 = 2.00% |
|
Payments in 3 years |
$ 15,559,056.50 |
|
Particulars |
Amount |
|
Interest rate |
8% |
|
Particulars |
Amount |
|
N |
5.00 |
|
r |
8%/12 = 0.67% |
|
Effective annual rate (EAR) |
4.90 |
|
Particulars |
Amount |
|
Time |
10.00 years |
|
Current price |
$100.00 |
|
Current price |
$78.12 |
|
Return |
2.50% |
|
Particulars |
Amount |
|
Current price |
$100.00 |
|
Bond price |
$ 78.12 |
|
Time |
9 |
|
Current price |
$ 73.37 |
|
Loss |
$ 4.75 |
|
Particulars |
Amount |
|
FV |
1000 |
|
rate |
3.50% |
|
n |
9 |
|
Bond price |
1000 |
|
Coupon payment rate |
2.50% |
|
Market price |
$923.92 |
|
Loss |
$76.08 |
|
Particulars |
Amount |
|
Percentage of loss |
8.23% |
|
Percentage of loss |
6.08% |
From the relevant calculations conducted in the above table the overall percentage of loss from bond is relatively higher than the loss conducted from share price.
|
Particulars |
Amount |
|
Next Annual dividend |
$ 3.70 |
|
Dividend growth rate |
5.00% |
|
Market return |
11.00% |
|
Expected Share price of McDonalds |
$ 61.70 |
|
Particulars |
Amount |
|
Next annual dividend |
3.70 |
|
Dividend growth rate |
5.00% |
|
Return from investment |
6.00% |
The above calculations mainly indicate expected share price of McDonalds from $61.70. Furthermore, the theoretically price of the company is relatively lower than the actual share price of McDonalds. Moreover, calculation of the overall return that is generated from investment is 6%.
The calculation conducted in IRR and NPV mainly indicates the positive attributes of the overall project. The NPV is mainly at the levels of $8,672.54, which is relatively positive and indicate viability of the project. In addition, the IRR is mainly at the levels of 16%, which is higher than cost of capital of 12%, which portrays financial performance of the project (Balakrishnan, Watts & Zuo, 2016).
The major difference in ranking is due to the investment appraisal techniques used in ranking the project. The investment appraisal technique such as NPV and IRR is mainly used in deriving the rank of both the projects. According to NPV valuation the Renovate project is viable, while Replace project is considered viable in case of IRR. The calculation of IRR and NPV is the main reason behind the difference in ranking of both the projects (Loughran & McDonald, 2016).
|
Ratios |
Explanation |
|
Quick ratio |
The quick ratio calculation allows the investors in identifying ability of the company to support its financial obligations by selling its current assets. The quick ratio mainly needs to be over 1, which indicates financial performance of the organisation (Goyal & Bhatia, 2016). |
|
Cash ratio |
Cash ratio allow the investor in detecting the overall cash, which is currently available to the company. This also helps in identifying whether the company could face short term liquidity issue, which could hamper its operational capability. |
|
Capital intensity ratio |
The capital intensity ratio is mainly used in comparing the capital utilised by the company in generating the relevant revenue. |
|
Total asset turnover |
The total asset turnover ratio indicates the overall assets that is used by the company in generating the relevant revenue. This indicates effectiveness of the management in utilising the deployed assets in generating higher return from investment. |
|
Equity multiplier |
The equity multiplier ratio mainly allows the investor in detecting the minimum finance from equity, which is used by company in acquiring relevant assets. In addition, the investor can detect the level of debt that is used by the organisation in acquiring its assets (Cengiz, Combs & Samy, 2017). |
|
Long-term debt ratio |
The identification of long term debt ratio allows investor in identifying the portion of long term debt present in the current assets accumulated by the organisation. In addition, this detection of debt used by the company helps in evaluating organisations solvency condition. |
|
Times interest earned ratio |
The calculation of time interest earned allows the investor to identify financial viability of the company in paying its finance cost. The higher times interest earned ratio allows the investor in understanding the extra debt, which could be accumulated by the company to support its activities. |
|
Profit margin |
The profit margin ratio allows the investor in identifying net profits, which is generated from investment. The investors can detect financial trend of the organisation, where its financial stability can be identified (Kanapickiene & Grundiene, 2015). |
|
Return on assets |
The return that is generated from deployed assets are mainly identified with the help of return on assets. This indicates the overall efficiency of the management in utilising the present assets in generating the required level of net profits. |
|
Return on equity |
The equity capital utilised by the company in generating high level of returns can be identified with the help of return on equity ratio. Investors are able to understand the level of capital used by the company to conduct its operations. |
|
Price earnings ratio |
The ratio is mainly used by investors in detecting whether the share price of the organisation is overvalued or undervalued. This helps them to make adequate investment decision and increase their return from investment. |
The investor is mainly a risk taker as derived from the evaluation of the above portfolio. In addition, the investor mainly aims in increasing its returns while ignoring the entire risk involved with investment.
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