Corporate Finance

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Executive Summary:

This report has been produced to outline developments in Corporate Finance. Why and how it is done.

I have looked at Bord na Mona for this report. The company was set up in 1946. A company that has lasted over 75 years must have made sound financial investments.

The report shows how BNM is changing from a predominantly fossil fuel company to a renewable energy company. It shows what investments were made for this to happen. It shows how much they cost and where they where built.

The report also shows how these investments were financed, through bank loans. It shows the size of the loans and how they are to be repaid.

In conclusion for the report, it was shown that these investments were necessary to take BNM into the future and keep the company at the forefront of Ireland’s energy market.

Contents Page:

Page:

2. Assignment Cover Sheet

3. Executive Summary

4. Contents

5. Introduction

5. History of Bord Na Mona

6. Investment Decision

7. Finance Decision

7. Conclusion

8. Bibliography

Introduction:

Corporate Finance boils down to the investment and financing decisions made by corporations. Financial managers identify, analyse and then value investment opportunities. They then decide if it is worth investing. If they do decide to invest, the financial manager must then raise the money to finance the investment. This is the chief task of a CFO.

First you find a number of investments then you must value them. In general, each project's value will be estimated using a discounted cash flow (DCF) valuation, and the opportunity with the highest value, as measured by the resultant net present value (NPV) will be selected. This requires estimating the size and timing of all of the incremental cash flows resulting from the project. Such future cash flows are then discounted to determine their value. These present values are then summed, and this sum net of the initial investment outlay is the NPV. The NPV is greatly affected by the discount rate. Thus, identifying the proper discount rate – often termed, the project "hurdle rate”, is critical to making an appropriate decision. The hurdle rate is the minimum acceptable return on an investment. The hurdle rate should reflect the riskiness of the investment, typically measured by volatility of cash flows, and must take into account the project-relevant financing mix. Even after doing all these calculations and an investment looks sound, it can fail. E.g. The Iridium communications satellite system, which offered instant telephone connections worldwide, soaked up $5 billion in investment before it started operations in 1998. It needed 400,000 subscribers to break even, but attracted only a small fraction of that figure. Iridium defaulted on its debt and filed for bankruptcy in 1999.

Bord Na Mona

History of Bord Na Mona:

Bord na Móna is a semi-state company in Ireland. It was set up in 1946 by the Turf Development Act 1946. The company is responsible for the mechanised harvesting of peat, primarily in the Midlands of Ireland. The Company was originally established in 1933 as the Turf Development Board. During WWII peat became very popular due to the fact coal was in short supply.

Harvesting was done manually originally, this was slow and costly. Nowadays there are machines that can cut tonnes of peat daily. Modern sales for BNM are in peat briquettes which have replaced the original sods of peat, they are made up of compressed shredded peat. The first milled peat plant run by the Bord was financed with a loan of £500,000 from Guinness in 1957. This is a good example of one of the first BNM financing decisions.

Much of Ireland’s bog land has been depleted and as such BNM is looking for new...
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