BBAC602 Business and Corporate Finance-equivalent annual value

Task:

Dan expects to make his money back within 3 years.  In Year 3, Dan anticipates that he will need to spend an amount of $10,000 for the maintenance of the Video store. After the maintenance Dan believes that he could sell the Video Store for $50,000 and the Rosebud Motel for $60,000. Dan’s cost of capital is 14%. 
 
(a) Calculate the net present value for each investment option. 
(b) Calculate the profitability index? 
(c) Calculate the payback period for each investment option. 
(d) Calculate equivalent annual value? 
 
Questions 1 – 5
1. After graduating, you have decided to become an entrepreneur. You have an exciting idea for a new technology business and an entire business plan for it but what you lack is sufficient funding. Discuss three (3) financing options available to raise adequate capital to bring your idea to existence.
Refer to chapters 9 and 10 lecture slides. This is a new and small business so what financing options could it utilise to raise capital? 
2.  Assume that in the scenario presented in the question above, you decided to take the business public. The firm has now been listed on the ASX for 3 years. The technology has been very successful, and you now see potential for further growth. The firm needs to invest in more ideas therefore needs further funds to fully develop these. The company is young and risky, so management has decided to rely mostly on equity finance (rather than debt). What options are now available to the company to raise new equity finance? Discuss. 

3. What is the payback period of the project?

4. Calculate the expected return and standard deviation of the expected returns for the tie lab, given the following distribution of returns:
5. Suppose securities analysts estimate the standard deviation of two securities AA(10%) and BB(20%).If Company invested $40,000 in AA stocks and $20,000 in BB stocks, what would be the portfolio risk ? The correlation coefficient between AA and BB is estimated -0.70. 

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