Essentials of corporate financial management Coursework

Essentials of corporate financial management - Coursework ExampleIn addition, the utensil can easily be modified to reflect updated information or changes in perceived risk, this is done by amending either the cash flows used or using an alternative discount rate. NPV however, is not without its problems. While the method is easily understood by those with an accounting background, a positive NPV leading to the acceptance of a project and a negative NPV a rejection. The actual calculations can be difficult to explain to a non-financial manager, the method can also be while consuming to set up in the first place. As such, the client may choose to use alternative methods including breakback period or informal rate of remember (IRR). Payback period is tool which gives a simple approximation of the length of time a project will take to pay back based upon an undiscounted cash flow. As such, the tool is easily explained to the non-financial manager but can be seen as oversimplified, not taking into account the time value of money (Arnold, 2007, Tennentt 2008). IRR on the other hand is similar to NPV in that the tool works with discounted cash flows however, instead of delivering a bottom line return on the project, the tool returns a return as a percentage in relation to the discount rate used. As such, this can be an large-hearted way of presenting financial information to managers who are used to dealing with percentages and other forms of sales data. Despite the use of these tools for the purposes of financial evaluation, it may be of greater splendour for the client to study qualitative data in relation to potential projects as well as the financial data. For instance, the client may consider the selling benefits associated with the project which could be used to drive a clear message of the companys commitments to the community and the wider social environment. In addition, the client also necessitate to be careful to consider the nature of the assum ptions used in the building of any financial models. For instance, an assumption has been made that the cost of particle acquisition has been guaranteed by contract at ?3.50 per tonne for the next five years. However, the client should consider various scenarios such as the liquidation of the supplier and the then changed cost of acquiring the raw material in such an environment. As such, it may be stated that the validity of any financial modelling is only as uncorrupted as the information from which the model is built. As such, while the clients NPV methodology is a good one in conducting a project appraisal, the client should also consider conducting a number of other forms of analysis alongside this, including payback period, IRR and qualitative analysis. A sample payback period, NPV and IRR have been provided in appendix one with the pursual results NPV ?3,847,144 Accept Project IRR 79.93% - Accept Project Payback period Within 2 years Client 2 In the scenario presented, th e client is left with dickens major options for the lineing of any future expansions, namely long term debt funding through bonds and long term equity funding through the come of new share capital. In addition, the client may consider a hybrid option issuing both long term debt and equity to fund future growth. In making any decision, one of the prime considerations of any financing exercise is to consider the cost of finance. In general terms, the cost of debt is seen in the literature as having a generally lower