Investment Appraisal Project Essay Example | Topics and Well Written Essays - 2000 words

Investment Appraisal Project - Essay Example WACC=wdkd(1-T)+wpkp+wsks Where   Kd = interest on debt   Kp = cost of preference shares   Ks = cost of shares and retained earnings.   WACC is calculated by multiplying the cost of equity by the market value of the equity and cost of debt by the market value of the debt. Cost of equity can be defined as the minimum rate of return that a company must generate and offer to their investors in order to provide a return on their investment and for assuming some level of risk. If the company does not offer this risk to the investors, there is a chance that the shareholders might sell these shares in the market. Selling of the company shares can be interpreted as a negative sign for the financial outlook of the company and will put a downward impact on the market value of the company. Cost of company’s equity can be calculated through ‘Dividend Growth Model’ and ‘Capital Asset pricing model.’ The formula for dividend growth model is as follows. E = D o Ke - g Where E is the market value of the equity, Do is the recent dividend paid or the dividend projected for the next year, Ke is the cost of the equity and g is the growth rate of the dividend. The dividend growth model assumes that the dividend grows in perpetuity at a definite rate. This growth rate can be computed by observing the historical dividend pattern of the company and calculating the growth rate through simple discount rate formula. Cost of debt is actually the rate at which the present value of the interest payments and redemption amounts equals the current market value of the debt. The following formula further clarifies. Where M is the market value of the bond currently on which it is being traded in the market, i is the interest payment and kd is the rate of return required by the debt holder. From the formula it can easily be deduced that the market value of any bond is the present value of the interest payment. But the above formula is only applicable in the c ase of debt having maturity till perpetuity. In case tax is involved, the interest is taken after tax. Cost of debt is basically the internal rate of return. As provided in the given information, the company’s debt equity ratio is 50%, which means that 50% of its operations are financed through debt and the other half is through equity. The company has available cash balance of ?450,000 and thus, in case the company opts to purchase any of the buildings, it will have to issue bonds by acquiring more debt. Since the company anticipates that the interest rates are likely to be increased in the future, it would be prudent to raise more funds through equity in order to curtail the impact of increased finance charge on the profitability of the company. The project under consideration requires a careful estimation of all the relevant costs and revenues; a misjudgment in the forecast will cause an error in the project net present value, which might result in the acceptance of a proj ect which is not financially viable. CALCULATION BASED ON DISCOUTNED CASHFLOW First, consider the building A which costs ?1,112,000. The following table presents the calculation of the Net Present Value (NPV) of the particular investment decision. Item Amount in ? '000 Years Now 1 2 3 4 5 6 7 8 9 10 Cost of the site (1,112) Cash in-flow

Organizational change Management Essay Example | Topics and Well Written Essays - 3000 words

Organizational change Management - Essay Example Various individuals in the organization will be involved in the change process and unless they understand the need for that change, their behaviour towards the proposed change will not be favourable. Behaviour change is very imperative for successful change because of the uncertainty that people perceive to come because of that change (Shea & Solomon, 2013, p. 15). The great need for the change in the organization enables the management to envision what they really want. This involves understanding reasons for the change, the structure of the change process and ensures successful implementation of that change (Shea & Solomon, 2013). Involving all the party concerned in the change also contributes greatly to the understanding of the change (Conway & Monks, 2011, p.. 191). Though strategic change may result from the top management, they should consider the middle level employees input to ensure they will not encounter much resistance. This also helps to counter any resistance early enough and make any clarification on time. Conway & Monks (2011) further asserts that for a successful change implementation, a clear outline of the benefits the change will bring must be present. However, many organizations often face opposition to change thus derailing the implementation process. Majority of the individuals defy change because it comes from top management and without proper consultations with them, the management forces them to adopt the change (Conway & Monks, 2011). This is especially so when they perceive that the change will negatively adjust their work status for instance in relation to workload, status change, which may prompt some of them to guard their own interests. According to Bates (2005), various individuals defy change for different reasons. Some may resist change to guard their own self-interest. Others fears the uncertainties that change brings while others lack clarity on the change process and some