Term paper

Topics: Net present value, Finance, Investment Pages: 2 (337 words) Published: January 6, 2014
Answer No.1
Excel file attached here

Answer No.2
1) NPV
2) PayBack period
3) IRR
Answer no. 3
We can get the annuity factor to calculate the earnings per year. The interest rates for this annuity will the discount rate. Comparison is mentioned in excel sheet. Answer no.4
The discount rate must be the WACC because this only shows the cost of money which a company has. If a company has borrowed the money then it must not have enough cash in hand/bank. This shows that the company is borrowing at higher cost and then earning a lower interest rate from the bank by just keeping it idle. Answer No 5

Key Value Drivers

Patronage Factor
A success of a business largely depends on the authority. Whether they are supporting the business or not has a major impact on the business. Upfront investment
How much investment a project needs create a massive difference. Investing a huge amount of money in a project where the return on investment is low is never a good idea. Cost of capital
It is used to evaluate new projects of a company as it is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet. Social impact of the pub business

In the case we can see that drug arrests in karaoke pubs are on the rise. So the authority should think twice before investing in the business. Security problems
In the case we can also see that the chief security officer had expressed his concerns over the unwelcome guests from outside. This can act as a negative factor for the pub in terms of attracting tourists travelling with children. If the environment is safe it would be easy for the business to do well.

Answer No. 6
Since the “Planet Karaoke Pub” has good IRR, less payback period and higher Economic value per year with respect to “Beach Karaoke Pub” so “Planet Karaoke Pub” must be presented in front of Board of Directors.
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