...Programme Evaluation Review Technique Part 2 / Answers for Short note questions 1. Sinking fund payment 2. Differentiation between PERT and CPM Model as follows:- PERT | CPM | * PERT uses event oriented Network. | * CPM uses activity oriented network. | * Estimate of time for activities are not so accurate and definite. | * Durations of activity may be estimated with a fair degree of accuracy. | * It is used mostly in research and development projects, particularly projects of non-repetitive nature. | * It is used extensively in construction projects. | * Probabilistic model concept is used. | * Deterministic concept is used. | * PERT is basically a tool for planning. | * CPM can control both time and cost when planning. | * In PERT, it is assumed that cost varies directly with time. Attention is therefore given to minimize the time so that minimum cost results. Thus in PERT, time is the controlling factor. | * In CPM, cost optimization is given prime importance. The time for the completion of the project depends upon cost optimization. The cost is not directly proportioned to time. Thus, cost is the controlling factor. | 3. Capital asset pricing Model is :- capital asset pricing model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk. The model takes into...
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...A Systematic Approach to Writing and Rating Entrepreneurial Business Plans KEVIN HINDLE AND BRENT MAINPRIZE KEVIN HINDLE is a professor of entrepreneurship at the Australian Graduate School of Entrepreneurship, Swinburne University of Technology. Melbourne, Australia. khindle@swin.edu.au BRENT MAINPRIZE is the core professor of entrepreneurship in the Faculty of Management at Royal Roads University in British Columbia, Canada. brent.inainprize@royalroads.ca T here is a small but growing b o d y of research that details many desirable attributes a n d qualities that, at a general level, any entrepreneurial business plan should contain. It is a reasonable proposition that this research, and any principles it may contain, can and should provide the basis for a systematic approach t o b o t h the writing and evaluation of entrepreneurial business plans. Despite this, the majority of entrepreneurial business plan writing and evaluation is unsystematic—if systematic is taken to mean "based o n empirical evidence and developed theory." T h e vast majority of the a b u n d a n t literature on " h o w to write a successful business p l a n " is n o t research-based (Hindle [1997]). T h e espoused criteria of its authors far o u t weigh the formal application of the k n o w n attributes of successful ventures (Hindle and Mainprize [2002]). This article seeks to articulate a research-based system for assessing the c o n t e n t quality of e...
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...theory of investment, the capital asset pricing model, and asset valuation: a synthesis MCDONALD John F. (College of Business Administration, University of Illinois at Chicago, Chicago, USA) E-mail: mcdonald@uic.edu Received Feb. 23, 2004; revision accepted Mar. 6, 2004 Abstract: The paper combines Tobin’s Q theory of real investment with the capital asset pricing model to produce a new and relatively simple procedure for the valuation of real assets using the income approach. Applications of the new method are provided. Key words: Investment theory, Asset pricing, Appraisal Document code: A CLC number: F832.48 INTRODUCTION This paper combines the economic theory of real investment and the standard financial model of asset pricing to produce a method for the valuation of real assets; and intentionally uses relatively simple versions of these two theories to link economics, finance, and appraisal. Numerical examples using data on real estate assets illustrate the valuation method. The Q theory of investment, introduced by James Tobin (1969), is popularly accepted theory of real investment hypothesized to be a positive function of Q, defined as the ratio of the market value to the replacement cost of capital. Standard presentation of the theory, such as that of Romer (1996), shows that Q is the value to the firm of an additional unit of capital, which is the discounted value of its future marginal revenue products. Extensions of the Q theory of investment have added...
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...and changes in expectations about future discount rate. Employing the calculation of realized return helps an investor make decisions about what assets to hold for a little longer, which ones to sell immediately, and when to acquire additional shares of a given investment. Measuring the rate of return over time helps to determine if the goals set for the investment are being met. It also impacts the buying and selling of assets on reaching the goals of the firm. The realized return is used as a management tool, and knowing this return for successive periods can help an investor arrange his or her assets to best effect, and position to move onward to the next level. Contrast systematic and unsystematic return. Systematic risk is risk that influences a large number of assets called market risk. Where as unsystematic risk is a risk that influences a single company of a small group of companies, also called unique risk. Unsystematic risk is eliminated by diversification, so a portfolio with man assets has almost no unsystematic risk. Unsystematic risk is also called diversifiable risk. Systematic risk is called non diversifiable risk. Diversification eliminates unsystematic risk but does not eliminate systematic risk. No matter how much total risk an asset has, only the...
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...various types depending on a number of ways. One of the most common and basic method of determining the classification is the action and effect of the decision on the company or organization in the range of types of the determination of classification judgment top decision deals with the operation. The overall plan is planning to include several separate groups in the next period, large organizational units of the detailed planning activities. In this way, covers the planning and the specific decisions that can have other details equilibrium. As per the AppiTaxi, We are sequentially arranged level decisions and plans can be categorized in the following: * Strategic Planning: The top-level strategic decisions. The following decision problem is the basic direction and long-term goals, philosophy and values. These decisions are structured at least most of the imagination; partly because they are important because it reaches so far future, it is the most dangerous and the most uncertain results. * Tactical Planning: Tactical decision support for strategic decision-making. They interim results and intermediate-range, mid-meaning, tends. * Task planning: These are the most detailed work on individual devices, components, one to identify the...
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...various types depending on a number of ways. One of the most common and basic method of determining the classification is the action and effect of the decision on the company or organization in the range of types of the determination of classification judgment top decision deals with the operation. The overall plan is planning to include several separate groups in the next period, large organizational units of the detailed planning activities. In this way, covers the planning and the specific decisions that can have other details equilibrium. As per the AppiTaxi, We are sequentially arranged level decisions and plans can be categorized in the following: * Strategic Planning: The top-level strategic decisions. The following decision problem is the basic direction and long-term goals, philosophy and values. These decisions are structured at least most of the imagination; partly because they are important because it reaches so far future, it is the most dangerous and the most uncertain results. * Tactical Planning: Tactical decision support for strategic decision-making. They interim results and intermediate-range, mid-meaning, tends. * Task planning: These are the most detailed work on individual devices, components, one to identify the...
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...FINAL 1. Financial Planning What are the three most valuable concepts you learned about the financial planning process? What actions will you take in your personal life based on what you have learned? Financial planning is a systematic process that considers the important Elements of an individual’s financial affairs in order to fulfill financial goals (Pg.5). The financial planning process involves six steps translating Personal financial goals into specific plans and strategies, and implements them and then uses budgets and financial statements to monitor and evaluate and revise plans and strategies as needed. The three most valuable concepts that I learned about the financial planning process include defining goals, creating a plan, implementing plan through action, and evaluation. They that time that it is impossible to an actively manage your Financial Resources without financial goals. Defining goals is Crucial after defining these goals you must formulate and develop plans and strategies in order to reach these goals. These plans goals strategies all need to remain realistic and attainable. It’s important to consider priorities and can raise them into long-term and short-term goals. Ann’s and strategies which to me is the most difficult because it requires control and monitoring. Spending money wisely and would be an example of implementing financial plans and strategies in order to reach financial goals. 2. Credit In what ways do you use credit...
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...Bibliography / References INTRODUCTION This essay will highlight the use of Capital asset pricing model ( CAPM ) to be considered as a pricing theory model for assets . CAPM model helps investors to analyse the risk and what expectation to keep from an investment (Banz , 1981) . There are two types of risk associated with CAPM known as systematic and unsystematic risk . The systematic risks are market risk which cannot be diversified such as fluctuations in interest rates and recession in the economy .Unsystematic risk are risks associated with an individual stock , it occurs when an investor increases the number of stocks on his portfolio. The unsystematic risk cannot be diversified as it is related an individual stock irrespective to the general market . (Amihud and Lev, 1981). The CAPM was introduced independently by Jack Trenor (1961 , 1962) , Jan Mossin (1996) and William F . Sharpe (1964) , it is basically an uplifment of the existing work of Harry Markowitz on modern portfolio therory as well as diversification which was given a name as CAPM (Investopedia , 2003). After approximately 4 decades of CAPM being introduced , it is still widely used by investors to determine the rate of return required by an investment . After its wide use in the recent times , there are statements which contributes towards the criticism of CAPM . This essay will discuss the concept behind CAPM , assumptions , advantages , disadvantages and...
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...SUMMARY OUTLINE CAPITAL BUDGETING PRACTICES OF INDIAN COMPANIES Introduction Corporate strategy provides the focal point for the firm's long-run strategic planning. The capital budgeting system, particularly for large strategic projects, is determined in the context of strategic planning and, thus, it is a top-down process. Corporate strategy and strategic planning play the most crucial role at the identification and evaluation phases. Operating and administrative capital budgeting decisions can be decided at lower /middle level of management within the overall strategic framework and guidelines from top management. The capital budgeting system at lower/middle level will largely be a bottom up process. It may be noted that external and internal environment provides a context to the company to establish and review its missions, concerns, and multiple objectives which, in turn, shape its corporate strategy. Objectives There are two objectives of this study: a) To document the capital budgeting policies and practices of companies in India, a developing" country, and contrast them with those of USA and UK, the developed countries b) To ascertain how business executives look upon the linkage between corporate strategy and investment decision-making. Sample and Methodology The study used interview-cum-questionnaire method and sent to 14 companies different businesses which had agreed to participate in all. Methods of Evaluation The study was...
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...Financial Understanding FIN 100 Professor Murphy August 26, 2012 Financial Understanding As a business owner, financial understanding is a must. Small businesses typically finance their operations differently than large corporations. Many small businesses must rely on the personal resources and credit history of the firm’s owners to access money needed to be a success. Whether it is a small business or a corporation, success depends on having the ability to earn more than what is being paid out. Financial ratios help do just that. The main three ratios that are used in the business world are the current ratio, total debt ratio, and profit margin. Current ratio measures whether or not the business has enough resources to pay its bills over the next 12 months. This ratio can be determined by dividing the current assets by the current liabilities found on the company’s balance sheet. Total debt ratio is exactly what it says, a measure of the company’s debt. The total debt ratio is total debt divided by total assets. Profit margin is simply how much profit is made. Net income divided by sales shows profits. Each of these can be used for any size business (Ward, n.d.). If current ratio was to show an inability to cover the costs, debt financing may be a solution. As with all financial options, there are advantages and disadvantages. One advantage of debt financing is that it allows the founders of the company to maintain control...
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...Finance Executive summary The purpose for this report is to find out the best option portfolio to invest through Telstra, Rio Tinto, Westfield, and Westpac Banking. The process is by explaining the relationship between risk and return, and then will explain how the risk can be measured and reduced, after this going to discuss diversifiable and non-diversifiable risk. By justifying the above relationship this report has chosen to analysis monthly opening and closing prices from four company shares and the opening and closing values for the all ordinaries index for 48 months from 1 January 2009 to 31 December 2012. In the end this report going to find out which is the most suitable option that choose to invest. Table of content 1. Executive Summary ……………………………………… 1 2. Introduction…………………………………………….….3 3. The relationship between risk and return…………………...3 4. Diversifiable and non-diversifiable risk………………….….3 5. Risk measurement……………………………………….…..4 6. Reducing risk when investing in securities……………….…5 7. Analyze the average monthly return of the shares and the expected value of the portfolios.............................................................5 8. Analyze the value of the individual betas and the beta of the portfolio...................................................................................6 9. Analyze the value of the individual standard deviations and the standard deviation of the portfolio...
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...pricing model (CAPM) will allow you to determine the required rate of return for any risky asset Assumptions of Capital Market Theory 1. All investors are Markowitz efficient investors who want to target points on the efficient frontier. Assumptions of Capital Market Theory 2. Investors can borrow or lend any amount of money at the risk-free rate of return (RFR). Assumptions of Capital Market Theory 3. All investors have homogeneous expectations; that is, they estimate identical probability distributions for future rates of return. Assumptions of Capital Market Theory 4. All investors have the same one-period time horizon such as one-month, six months, or one year. Assumptions of Capital Market Theory 5. All investments are infinitely divisible, which means that it is possible to buy or sell fractional shares of any asset or portfolio. Assumptions of Capital Market Theory 6. There are no taxes or transaction costs involved in buying or selling assets. Assumptions of Capital Market Theory 7. There is no inflation or any change in interest rates, or inflation is fully anticipated. Assumptions of Capital Market Theory 8. Capital markets are in equilibrium. Risk-Free Asset • • • • An asset with zero standard deviation Zero correlation with all other risky assets Provides the risk-free rate of return (RFR) Will lie on the vertical axis of a portfolio graph Covariance with a Risk-Free Asset Covariance between two sets of returns is...
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...UNIT-I Unit I: Nature of Financial Management: Meaning – Nature – Objectives – Scope- Functions of Financial Management – Financial forecasting – Financial Planning – Time Value of Money (NP) Nature of Financial Management: Meaning: Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. Nature Scope/Elements 1. Investment decisions includes investment in fixed assets (called as capital budgeting).Investment in current assets are also a part of investment decisions called as working capital decisions. 2. Financial decisions - They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby. 3. Dividend decision - The finance manager has to take decision with regards to the net profit distribution. Net profits are generally divided into two: a. Dividend for shareholders- Dividend and the rate of it has to be decided. b. Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise. Get MBA study materials, articles, order business templates and stock market updates from or http://www.easymbaguide.in/ or www.easymbaguide.jimdo.com or www.easymbaguide.blogspot.com. Give your valuable feedback...
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...Lecture Handouts for Chapter 5 Chapter 5 is covered in lectures 31 and 32. Risk and Return The return from an investment is the change in market price, plus any cash payments received due to ownership, divided by the beginning price. The risk of a security can be viewed as the variability of returns from those that are expected. Measurement of Risk The expected return is simply a weighted average of the possible returns, with the weights being the probabilities of occurrence. The conventional measure of dispersion, or variability, around an expected value is the standard deviation σ. The square of the standard deviation σ2 is known as the variance (σ2). The standard deviation can sometimes be misleading in comparing the risk, or uncertainty, surrounding alternative investments if they differ in size. To adjust for the size, or scale, problem, the standard deviation can be divided by the expected return to compute the coefficient of variation (CV) – a measure of “risk per unit of expected return.” Investor’s Attitude towards Risk Investors have different attitudes while deciding between the risk and return in an investment. Investors are, by and large, risk averse. This implies that they demand a higher expected return, the higher the risk. The expected return from a portfolio The expected return from a portfolio (or group) of investments is simply a weighted average of the expected returns of the securities comprising that portfolio. The weights are equal to the proportion...
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...Issues in Risk Analysis Risk refers to a situation in which possible future events can be defined and probabilities assigned (Keat & Young, 2009). It is the chance that an investment's actual return will be different than expected (Risk, 2013). With risk comes the possibility of losing some or all investments (Risk, 2013). Uncertainty refers to situations in which there is no viable method of assigning probabilities to future random events (Keat & Young, 2009). In order to understand the relationship between uncertainty and risk, first I would like to define risk. First, in technology and economics, risk is expressed as an expected value that an event will be accompanied by undesirable consequences (The Difference Between Risk and Uncertainty, 2013). Here it is measured by both the probability of the event and the seriousness of the consequences (The Difference Between Risk and Uncertainty, 2013). For example, the probability that a bearing will fail in five years is .001 percent (The Difference Between Risk and Uncertainty, 2013). In the second area of planning, risk is what can happen that will cause the project to fall behind schedule or go over cost. During planning, the known-unknowns are risk (The Difference Between Risk and Uncertainty, 2013). The final area is in management; risk is the possibility that outcomes will be different from what we expect. It is the effort to manage both the known-unknowns and unknown-unknowns (The Difference Between Risk and Uncertainty...
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