past paper

Decision Making Area 3:Investment Decisions * Table of Articles * Summary of Articles * Observations * Conclusion

Investors are always tempted to invest in business opportunities that promise good returns. However, this may drive them gambling tendencies and loss of investment. When savings are seen as appropriate ways of investment accompanied by initial outlays and delight of first results, temptations arise with the call for further re-investments. Investors have critical choices to make at such a point. This is because the accomplishment of the initial investment can characteristically accelerate an appetite for further investment that might expose them to risks. This is an essential stage in the path of any investor and a wise one identifies and effectively navigates this phase (Bery, 2007).

Introduces the concepts of finance. Reviews the basic tools and their use for making financial decisions. Explains how to measure and compare risks across investment opportunities. Analyzes how the firm chooses the set of securities it will issue to raise capital from investors as well as how the firm’s capital structure is formed. Examines how the choice of capital structure affects the value of the firm. Presents valuation and integrate risk, return and the firm’s choice of capital structure.

| Attempt made to analyse a financial issue incorporating discipline knowledge and theory, but only minimal understanding of the issue is evident; Analysis addresses some aspects of the issue, but key elements are not

ABC Company is a firm that manufactures cedar roofing and siding shingles. The company is trying to broaden its business interests so it can grow its annual revenue to reach their growth goals. ABC Company wants to start new product lines in order to boost sales to reach those targets. The company knows that it will create large expenses opening new production lines, however, they are confident the additional revenues generated by the growth will more than make up for the added costs the original investment. The plan to make cedar dollhouses out of scrap shingles will allow ABC to generate revenue of higher than $3 million over the preceding three years, as opposed to the $1.2 million in its established product lines. A risk profile will tell investors the “Organization’s willingness to take risks, as well as the threats to which the same is exposed (Investopedia, 2015).

The purpose of this report is to perform a comparative analysis of the profitability of two potential equity investments: Auto Wash Bot Ltd. (AWBL) and Popeye’s Muscle Wash Ltd. (PMWL). AWBL is selling 50% ownership for $100,000 in efforts to pursue expansion in the mobile device industry, and PMWL is selling 100% of its business for $100,000 to pursue retirement. A complete analysis of each company’s income statement will report key issues in both firms, as well as offer a

We assumed an asset beta of 1.15 (the median asset beta of the three comparable companies) and a debt beta of 0 (with no interest bearing debt) for Project Achieve. Using the 30-year treasury rate (5.94%) as the risk-free rate because of Project Achieve’s expected life and a historical 7.0% market risk premium, we calculated Project Achieve’s discount rate at 14.0%. This discount rate values Achieve as a public company, comparable to its public counterparts. As a non-public start-up, however, Project Achieve is far more risky than the more established comparables discussed above. Thus, we added a 5% start-up risk premium to reach an appropriate 19% discount rate for the valuation of Project Achieve. (See Exhibit #1)

In this assignment, I take the role of an investor looking to invest an amount of USD 50,000 in the capital of a public limited company.

In this essay, investments and projects will be used interchangeably. All projects are investments (although not always financial) (APM, 2014) and all investments are projects: they are unique, transient endeavours. (Kerzner, 2006) Pertinent questions, which are analysed and answered throughout a project (or investment) include: (1) Will this make a profit? (2) What will the profit be? (3) What are the financial timescales? (Kerzner, 2006, Atrill and McLaney, 2012)

Whenever the idea of investment comes, one of the first questions that pop in our mind is whether it would reap good returns or not. Then we proceed on to probe on the risks involved, investment tenure and other prerequisites before actually investing.

Item P17-10 P17-11 P17-12 *P17-13 *P17-14 *P17-15 *P17-16 *P17-17 *P17-18 CA17-1 CA17-2 CA17-3 CA17-4 CA17-5 CA17-6 CA17-7 Description Equity investments. Investments—statement presentation. Gain on sale of investments and comprehensive income. Derivative financial instrument. Derivative financial instrument. Free-standing derivative. Fair value hedge interest rate swap. Cash flow hedge. Fair value hedge. Issues raised about investments. Equity investments. Financial statement effect of investments. Equity investments. Investment accounted for under the equity method. Equity investments. Fair value—ethics. Level of Difficulty Complex Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate Simple Moderate Simple Moderate Moderate Time (minutes) 30–40 20–30 20–30 20–25 20–25 20–25 30–40 25–35 25–35 25–30 25–30 20–30 20–25 15–25 25–35 25–35

There are two basic types of securities, stocks and bonds. Although with both of these investments, money in exchanged for a certificate, they are fundamentally different. A stock is evidence of being a shareholder, hence an owner in a company. A bond, on the other hand, while still a certificate, represents a contract and evidence of a loan to a company. Therefore stock is a form of an equity investment and bonds are a form of a debt investment. Although there are a variety of stocks and bonds, this paper will focus on common stock and corporate bonds and highlight the advantages and disadvantages of investing in either of these two financial instruments. Knowing the difference between stocks and bonds will help investors find the right level of risk and return for their portfolios.

One of the key areas of long-term decision-making that firms must tackle is that of investment - the need to commit funds by purchasing land, buildings, machinery, etc., in anticipation of being able to earn an income greater than the funds committed. In order to handle these decisions, firms have to make an assessment of the size of the outflows and inflows of funds, the lifespan of the investment, the degree of risk attached and the cost of obtaining funds.

² Eugene F. Brigham; Joel F. Houston; ' 'Fundamentals of Financial Management ' '; Fourth edition; P.554-559

INSTRUCTIONS AND INFORMATION 1. 2. You are provided with a question paper and an answer book. The paper comprises FOUR compulsory questions. The compulsory questions are QUESTIONS 1, 2, 3 and 4. Answer ALL these questions. You must also answer ONE other question; either QUESTION 5 OR Question 6. Use the answer book provided in order answer the questions. Workings must be shown in order to achieve part-marks. You must attempt to comply with the suggested time allocations. Non-programmable calculators may be used. You may use