Friday 18 May 2018

Mini Case 1 & 2 Case Study Sample

Author Name: Adam Oliver
Institution Name: Jorge H. Steele

  This entry was posted in Thecasestudysolutions.com on by Case Study Help.

 
Mini Case 1:




Answer-1.5

From the aforementioned computation and clearly analysis, it is found that the answers of CAPM and DVM is different than each other which has based its case study solution help on the main outcome of the of the WACC. The main different is found due to the risk premium factor. The risk premium is added specifically in the context of CAPM, because it undertakes the return on the market, as well as the risk free rate as well, which is not even found in the dividend discount model (DDM). The pertaining advantage of the CAPM is more efficient and worthwhile for the companies as compared to the DDM approach, as DDM approach suppose the past dividend rate in particular. Past dividends don’t have the ability to predict the future return as found in the Efficient Market Hypothesis (EMH). Therefore, this particular outcome would be highly worthwhile and efficient for the researcher to base their research at the same. The rate of return in terms of DDM is little bit higher than the CAPM. The CAPM equation shows a proportion of 9.5%, while it was 10.91% for the DDM, due to the presence of the dividend income in it. The CAPM result found higher than the result extracted through the DDM, because of the inclusion of the risk free rate in it, along with the risk premium factor in particular. This particular outcome would be highly efficient and helpful in the long run sustainability for their proficiency and productivity in the long run.

Answer-2.3

There are two different investment appraisal tools such as Capital Budgeting has been taken into the consideration which are Net Present Value (NPV) and Payback Period (Key and Czaplewski, 2017). From the aforementioned calculation, it is clearly found that the computed NPV is positive and showing a value of $ 147,440.869 on their capital investment. It is showing that the company is able to generate sufficient amount of money on their required capital which will be essential for their efficiency and productivity. It means that the financial benefits of the tool is way higher than that of the current initial outlay of the company. Apart from the NPV, there is another tool which has been taken into the account as well such as payback. The payback period is only 3 years. It means that it has the ability to get the initial outlay in a matter of 4.4 years, which is efficient. Based on the same analysis, it can be said that the project should be accepted as it will yield positive result for them.

Answer-2.4
 
There are two different investment appraisal techniques which have been used in the same analysis, known as NPV and Payback. NPV is an important capital budgeting tool that has the ability to select the project when its future value would be higher than the present value of its initial outlay (Brigham, 2013). It means that the NPV of a project should be in the positive node, if it is likely to select the project accordingly. The same is applicable in this particular aspect as well in which the NPV is showing in the positive and higher node, which is again a positive sign for the company (Choi, 2003). Most of the corporate analysts are likely to consider the same tactic for the project evaluation. On the other hand, Payback is a tool which case study analysis the time period in which the initial investment would have been covered easily by the company (Coombs, 2002). It is also an important tool, and organizations should select the project that have lower payback, like this project which has only a payback period of 4.4 years, which totally rationalize its selection.


References

Brigham, E. F. (2013). Financial Management: Theory & Practice. London: Cengage Learning.

Choi, F. D. (2003). International Finance and Accounting Handbook. Houston: John Wiley & Sons.

Coombs, H. M. (2002). Public Sector Financial Management. Excel Sheet Calculation Solution Case Study Sample Chicago: Cengage Learning EMEA.

Key, T. M., and Czaplewski, A. J. (2017). Upstream social marketing strategy: An integrated marketing communications approach. Business Horizons, 60(3), 325-333.

Kitchen, P. J., and Burgmann, I. (2015). Integrated Financial communication: Making it work at a strategic level. Journal of Business Strategy, 36(4), 34-39.