Loan, Finance, Investment, And Renovation Analysis – Key Values And Ratios
- December 21, 2023/ Uncategorized
Loan amount
|
Particulars |
Value |
|
Loan amount |
$ 20,000,000 |
|
Tenure |
120 |
|
Interest rate |
0.67% |
|
Monthly payment |
$ 242,655 |
|
Particulars |
Value |
|
Loan amount |
$ 20,000,000 |
|
Interest rate |
0.67% |
|
First payment is interest |
$ 133,333 |
|
Particulars |
Value |
|
Monthly payment |
$ 242,655 |
|
First payment is interest |
$ 133,333 |
|
First payment is principal |
$ 109,322 |
|
Particulars |
Value |
|
Instalments |
$ 242,655 |
|
Interest rate |
0.67% |
|
Time |
84 |
|
Total loan amount owed |
$ 15,568,577.62 |
|
Particulars |
Value |
|
Loan amount |
$15,568,578 |
|
Tenure |
84 |
|
Interest rate |
0.58% |
|
Refinance cost |
$250,000 |
|
Instalments |
$242,655 |
|
Monthly loan payments |
$234,972 |
|
Difference |
$7,684 |
|
Time |
84 |
|
rate |
0.58% |
|
PV |
$ 509,096 |
|
Particulars |
Value |
|
Building value |
$ 25,000,000 |
|
Loan amount |
$ 20,000,000 |
|
Tenure |
40 |
|
Interest rate |
2.00% |
|
Quarterly Payments |
$ 731,115 |
|
Particulars |
Value |
|
Interest rate |
2.00% |
|
Quarterly Payments |
$ 731,115 |
|
Time |
28 |
|
Total payments conducted in 3 years |
$ 15,559,057 |
|
Particulars |
Value |
|
Interest rate |
8% |
|
Particulars |
Value |
|
r |
0.01 |
|
n |
5.00 |
|
EAR |
4.90 |
|
Particulars |
Value |
|
Current price |
100.00 |
|
Time |
10 years |
|
Current price |
78.12 |
|
Return |
2.50% |
|
Particulars |
Value |
|
Bond price |
78.12 |
|
Time |
1 |
|
Current price |
80.85 |
|
Return |
3.50% |
|
Particulars |
Value |
|
FV |
1000 |
|
rate |
3.50% |
|
n |
1 |
|
Market price |
$ 966 |
|
Bond price |
1000 |
|
Coupon payment rate |
2.50% |
|
Market price |
$ 966 |
|
Coupon payment |
25 |
|
Return for the year |
-0.9% |
The returns of the bond mainly change due to its price, where increased current prices and declining selling prices directly reduces the overall returns of the company. The declining value of selling price from the buying price mainly reduces the overall return of the organisation (Block and Galabuzi 2018). Therefore, the declining value of the bond even with coupon payment reduces the overall rate of return for the investor.
|
Particulars |
Value |
|
Dividend growth rate |
5% |
|
Market return |
11% |
|
Next Annual dividend |
3.7 |
|
Exp Share price of McDonalds |
$ 61.7 |
|
Current price of McDonalds |
$ 157.3 |
The valuations conducted in the above table mainly helps in identifying the overall theoretical price of McDonalds. which is relatively lower that the current share price of the company. The theoretically share price is mainly at the levels of $61.7, while the current share price is at $157.3, which indicates that investors should ignore the company, as decline in its share value is estimated (Canales 2016).
|
Question |
Type of Risk |
|
a. |
Systematic Risk |
|
b. |
Systematic Risk |
|
c. |
Unsystematic Risk |
|
d. |
Unsystematic Risk |
|
e. |
Systematic Risk |
|
Year |
Cash flow |
Cum cash flow |
Disc factor |
Dis cash flow |
|
0 |
$ (85,000.00) |
$ (85,000.00) |
1.00 |
$ (85,000.00) |
|
1 |
$ 18,000.00 |
$ (67,000.00) |
0.89 |
$ 16,071.43 |
|
2 |
$ 22,500.00 |
$ (44,500.00) |
0.80 |
$ 17,936.86 |
|
3 |
$ 27,000.00 |
$ (17,500.00) |
0.71 |
$ 19,218.07 |
|
4 |
$ 31,500.00 |
$ 14,000.00 |
0.64 |
$ 20,018.82 |
|
5 |
$ 36,000.00 |
$ 50,000.00 |
0.57 |
$ 20,427.37 |
|
Payback period |
3.56 years |
|
Year |
Cash flow |
Cum cash flow |
Disc factor |
Dis cash flow |
|
0 |
$ (85,000.00) |
$ (85,000.00) |
1.00 |
$ (85,000.00) |
|
1 |
$ 18,000.00 |
$ (67,000.00) |
0.89 |
$ 16,071.43 |
|
2 |
$ 22,500.00 |
$ (44,500.00) |
0.80 |
$ 17,936.86 |
|
3 |
$ 27,000.00 |
$ (17,500.00) |
0.71 |
$ 19,218.07 |
|
4 |
$ 31,500.00 |
$ 14,000.00 |
0.64 |
$ 20,018.82 |
|
5 |
$ 36,000.00 |
$ 50,000.00 |
0.57 |
$ 20,427.37 |
|
NPV |
$ 8,676.10 |
|
Year |
Cash flow |
Cum cash flow |
Disc factor |
Dis cash flow |
|
0 |
$ (85,000.00) |
$ (85,000.00) |
1.00 |
$ (85,000.00) |
|
1 |
$ 18,000.00 |
$ (67,000.00) |
0.89 |
$ 16,071.43 |
|
2 |
$ 22,500.00 |
$ (44,500.00) |
0.80 |
$ 17,936.86 |
|
3 |
$ 27,000.00 |
$ (17,500.00) |
0.71 |
$ 19,218.07 |
|
4 |
$ 31,500.00 |
$ 14,000.00 |
0.64 |
$ 20,018.82 |
|
5 |
$ 36,000.00 |
$ 50,000.00 |
0.57 |
$ 20,427.37 |
|
IRR |
16% |
Both IRR and NPV of the project is relatively positive indicating viability of the project in generating higher return from investment. The overall NPV is mainly at the levels of $ 8,676.10, while the overall IRR is at 16%. Both the investment appraisal techniques mainly depict financial viability of the project, which help in generating higher return from investment (Diebold 2017).
|
Year |
Renovate |
Replace |
|
0 |
$ (9,000,000.00) |
$ (1,000,000.00) |
|
1 |
$ 3,500,000.00 |
$ 600,000.00 |
|
2 |
$ 3,000,000.00 |
$ 500,000.00 |
|
3 |
$ 3,000,000.00 |
$ 400,000.00 |
|
4 |
$ 2,800,000.00 |
$ 300,000.00 |
|
5 |
$ 2,500,000.00 |
$ 200,000.00 |
|
NPV |
Rank 1 – $ 1,128,309 |
Rank 2 – $ 433,779 |
|
Year |
Renovate |
Replace |
|
0 |
$ (9,000,000.00) |
$ (1,000,000.00) |
|
1 |
$ 3,500,000.00 |
$ 600,000.00 |
|
2 |
$ 3,000,000.00 |
$ 500,000.00 |
|
3 |
$ 3,000,000.00 |
$ 400,000.00 |
|
4 |
$ 2,800,000.00 |
$ 300,000.00 |
|
5 |
$ 2,500,000.00 |
$ 200,000.00 |
|
IRR |
Rank 2 – 20% |
Rank 1 – 36% |
The mixed result provided by the investment is mainly due to the different levels of investment appraisal techniques used by the company. The NPV valuation mainly uses time valuation and cash flow to identify the most viable investment opportunity. On the other hand, the IRR method is mainly used by the organisation in detecting the level of returns that will be generated from the project. According to the NPV valuation renovate project is the viable options, whereas replace project is viable in case of IRR calculation. The difference in calculation are mainly used by investors and managers when evaluating the overall projects (Finance and Zwerman 2015). Managers mainly use IRR as it helps in detecting projects, whose overall return is high, while NPV is mainly used in detecting projects having higher net present value.
|
Year |
Project A |
Project B |
Project C |
Project D |
Project E |
|
0 |
$ (20,000.0) |
$ (600,000.0) |
$ (150,000.0) |
$ (760,000.0) |
$ (100,000.0) |
|
1 |
$ 3,000.0 |
$ 120,000.0 |
$ 18,000.0 |
$ 185,000.0 |
$ – |
|
2 |
$ 3,000.0 |
$ 145,000.0 |
$ 17,000.0 |
$ 185,000.0 |
$ – |
|
3 |
$ 3,000.0 |
$ 170,000.0 |
$ 16,000.0 |
$ 185,000.0 |
$ – |
|
4 |
$ 3,000.0 |
$ 190,000.0 |
$ 15,000.0 |
$ 185,000.0 |
$ 25,000.0 |
|
5 |
$ 3,000.0 |
$ 220,000.0 |
$ 15,000.0 |
$ 185,000.0 |
$ 36,000.0 |
|
6 |
$ 3,000.0 |
$ 240,000.0 |
$ 14,000.0 |
$ 185,000.0 |
$ – |
|
7 |
$ 3,000.0 |
$ 13,000.0 |
$ 185,000.0 |
$ 60,000.0 |
|
|
8 |
$ 3,000.0 |
$ 12,000.0 |
$ 185,000.0 |
$ 72,000.0 |
|
|
9 |
$ 3,000.0 |
$ 11,000.0 |
$ 84,000.0 |
||
|
10 |
$ 3,000.0 |
$ 10,000.0 |
|||
|
NPV |
$ (4,943.7) |
$ 47,537.0 |
$ (74,477.9) |
$ 70,154.5 |
$ 2,163.4 |
|
Opinion |
Non-acceptable |
Acceptable |
Non-acceptable |
Acceptable |
Acceptable |
|
Cash Flows |
Alpha |
Beta |
Gamma |
|
Payback period |
3.5 |
2.5 |
3.33 |
|
Cash Flows |
Alpha |
Beta |
Gamma |
|
Selection based on If the cut-off period is 3 years |
Unaccepted |
Accepted |
Unaccepted |
|
Selection based on If the cut-off period is 4 years |
Accepted |
Accepted |
Accepted |
|
Cash Flows |
Alpha |
Beta |
Gamma |
|
Selection based on Investment in shortest period |
Unaccepted |
Accepted |
Unaccepted |
|
Particulars |
Alpha |
Beta |
Gamma |
|
Selection based on Payback |
Unaccepted |
Accepted |
Unaccepted |
|
Particulars |
Alpha |
Beta |
Gamma |
|
Selection based on payback |
Unaccepted |
Accepted |
Unaccepted |
|
Particulars |
Alpha |
Beta |
Gamma |
|
Selection based on discounting rate |
Unaccepted |
Accepted |
Unaccepted |
|
Ratios |
Explanation |
|
Quick ratio |
With the help of quick ratio relevant liquidity of the organisation is detected by investors. In addition, the ratio also helps in identifying ability of the company to support its short term financial obligations. |
|
The cash ratio indicates overall cash position of the company, where investors can identify availability of the company in supporting its liabilities. The cash ratio indicates the cash availability condition and detect whether company can have short term liquidity issues. |
|
|
Capital intensity ratio |
The ratio relevantly compares the overall capital, which has been deployed by the organisation in generating the revenue |
|
Total asset turnover |
The ratio mainly depicts viability of the organisation in utilising the available assets in accumulating the relevant revenues and net profit. |
|
Equity multiplier |
With the use of equity multiplier investors are mainly able to detect the assets, which has been financed by shareholders. In addition, it also indicates the level of debt accumulation, which has been maintained by the company during the fiscal year. |
|
Long-term debt ratio |
The ratio indicates the overall debt, which has been maintained by the organisation in accumulating the assets. The level of debt, loan and financial obligations used by the organisation in crating the assets are identified from long-term debt ratio. |
|
Times interest earned ratio |
The ratio indicates ability of the company in supporting the overall loans and finance cost. This relevantly indicates that times interest earned allows banks to detect financial viability of the company in supporting its finance cost. |
|
Profit margin |
With the help of profit margin ratio investors are able to detect financial viability of the company and the relevant trends in which profits have been obtained. |
|
Return on assets |
The ratio mainly helps in identifying the level of profits, which has been obtained by the company by deploying its total assets. This detection of the ratios allows investor to gauge into the efficiency of the management in controlling it operations. |
|
Return on equity |
Moreover, the ratio also allows the investor in identifying the return on equity, which has been obtained by deploying overall assets. This helps in identifying the overall equity capital used by the management in producing the profits. |
|
Price earnings ratio |
The price earnings ratio mainly allows the investor to evaluate company’s current share price with its earnings per share. This helps investor in making adequate investment decisions and generate higher return from investment. |
|
Stock |
Rate of return |
|
Fire |
10.8% |
|
Water |
14.0% |
|
Air |
16.8% |
|
Name of Company |
Invested money |
Weights |
Rate of return |
|
Fire |
$2.00 |
20.0% |
10.8% |
|
Water |
$3.00 |
30.0% |
14.0% |
|
Air |
$5.00 |
50.0% |
16.8% |
|
Total |
$10.00 |
||
|
Rate of return of portfolio |
14.8% |
|
Name of Company |
Invested money |
|
Beta of the portfolio |
1.35 |
|
Portfolio returns |
14.76% |
|
Name of Company |
Invested money |
Weights |
Rate of return |
|
Fire |
$2.00 |
20.0% |
10.8% |
|
Water |
$3.00 |
30.0% |
14.0% |
|
Air |
$5.00 |
50.0% |
16.8% |
|
Total |
$10.00 |
||
|
Rate of return of portfolio |
15.68% |
From the overall evaluation of above portfolio calculation, it could be detected that the portfolio investor is mainly a risk taker. This indicates that the investor aims in increasing its overall return form investment, regardless of the high risk, which is been accumulated within the portfolio.
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