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Found 1120 Articles for Banking & Finance
![Mandalika](https://www.tutorialspoint.com/assets/profiles/223769/profile/60_143952-1595686763.jpg)
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Modified internal rate of return (MIRR) is the adjusted rate of return to eliminate difference between investment rate and return. MIRR sorted out some issues in internal rate of return (IRR). MIRR tells about viability of the project. If the result is more than expected return, then the projects will be considered. MIRR is more accurate than IRR.Formula$$MIRR =\sqrt[n]{\frac{FVc}{PVc}}-1$$Here, FVc= future value of cash flow, PVc= present value of cash flow and n = No. Of periods.FVc Is positive cash flow that is discounted at reinvestment rate.PVc Is negative cash flow that is discounted at financing rate.Advantages of modified internal ... Read More
![Mandalika](https://www.tutorialspoint.com/assets/profiles/223769/profile/60_143952-1595686763.jpg)
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The major differences between internal rate of return (IRR) and modified internal rate of return are as follows −Internal rate of return (IRR)Calculates discount rate based on internal factors.NPV = 0.Cash flows are Reinvested at project’s IRR.Provides two solutions.Less accurate.Higher than MIRR.Low precision.Modified internal rate of returnCost of capital is used in calculations.NPV = investment (outflow).Cash flows are reinvested at firm rate of return.Provides one solution.More accurate.More realistic than IRR.High precision.
![Mandalika](https://www.tutorialspoint.com/assets/profiles/223769/profile/60_143952-1595686763.jpg)
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The factors considered by venture capitalist before investing are as follows −Management Team − Investors look for management team that have skills, knowledge, and their record of accomplishment. Commitment towards the goal is the key.Viability of the project − Capital firm will look at product market, end user, competitors and growth of industry/sector before investing in a project.Business planCost and returns − Project cost, financing scheme, source of finance are also studied in details. Investment for a project will be depends on cash outflows. Internal rate of return (IRR) tells about risk associated with the project and the time to ... Read More
![Mandalika](https://www.tutorialspoint.com/assets/profiles/223769/profile/60_143952-1595686763.jpg)
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Securitization is the procedure of converting assets into securities. In other words, securitization means all assets of a company are consolidated into securities.An originator, special purpose vehicle (SPV), investment bank, credit rating agency, insurance company, obligator and investor are required in securitization.The process involved in debt securitisation is as follows −Identification.Transfer.Issue.Redemption.Credit rating.Amount is collected into pool.Divide amount into small parts and sell that small parts as securities.Buyers who buy these securities will get interest.Mortgage backed securities.Moreover, process continues as a cycleSecuritization is done onTerm loans.Receivables (government & companies).Purchases loans.Lease finance.Mortgage loans etc.Methods in debt securitisation are mentioned below −Pass through ... Read More
![Mandalika](https://www.tutorialspoint.com/assets/profiles/223769/profile/60_143952-1595686763.jpg)
878 Views
Cut off point is base point at which investment proposal is accepted. It depends on risk of the investment proposal. If the proposal has high risk then, cut off point is high and if the proposal has low risk then, cut off point is low.Cut off rate is the lower or base rate at which, investors gets their returns for their investment. Investors will use different techniques to analyse their proposals before investing. Depends on risk of the project and cut off rates varies for different projects.Factors affecting cut off rateAmount − If the investing amount is high, then cut ... Read More
![Mandalika](https://www.tutorialspoint.com/assets/profiles/223769/profile/60_143952-1595686763.jpg)
161 Views
The major differences between cash flow and free cash flow are as follows −Cash flowFinds operating cash inflow and activities of finance and investments of the business.Net cash inflows are calculated.Liquidity of company is determined.It has broad scope.Operating, investing and finance cash flows are used in calculating cash flows.It gets difficult to find out cash flow when, both more than one cash and non-cash transactions are taken place.Not much time is needed.Used in financial accounting.Income statement is required for calculation purpose.Free cash flowFinds Prevent value of business.Valuation of business (investors) is calculated.Financial health of the company is determined.Limited scope.EBIT, Capital ... Read More
![Mandalika](https://www.tutorialspoint.com/assets/profiles/223769/profile/60_143952-1595686763.jpg)
169 Views
SolutionThe solution is as follows −Initial investment = Rs. 25000000/- Disposed value by analyst = Rs.500000/- Book value = Rs.375000/- Tax rate = 25%Tax rate for disposal => (500000 – 375000) * 25% => 125000 * 25% => Rs.31250/-After deducting taxes => 500000 – 31250 => Rs.468750/-Terminal cash flows = after deducting taxes + working capital recovered => 468750 + 500000 => Rs.968750/-
![Mandalika](https://www.tutorialspoint.com/assets/profiles/223769/profile/60_143952-1595686763.jpg)
46 Views
SolutionThe solution is given below −Total sales (in billion tons) – current = 16 Total sales (in billion tons) – proposed = 16 + 7 => 23Incremental cash flowsSalesCurrentDomestic sales => 8 * 80 => 640 Export sales => 8 * 120 => 960 Total current sales = 640 + 960 => 1600ProposedDomestic sales => 12 * 80 => 960 Export sales => 11 * 120 => 1320 Total current sales = 640 + 960 => 2280Incremental = proposed – sales => 2280 – 1600 => 680Variable cost => (11*20) + (12*15) => 220 – 180 => 40Contribution margin => sales – variable costsCurrent => 1600 – 180 => 1420Proposed => 2280 – 220 => 2060Fixed costCurrent => 140Proposed => 260Net cash => contribution margin – fixed costCurrent => 1420 – 140 => 1280Proposed => 2060 – 260 => 1800Incremental => net cash (proposed) – net cash (current) => 1800 – 1280 => $520 billionPay back => initial investment/ net cash (incremental) => 1000/ 520 => 1.92 years (approximately)Calculated payback (1.92 years) is less than estimated payback (4 years)Hence, we can conclude that it is a good investment.
![Mandalika](https://www.tutorialspoint.com/assets/profiles/223769/profile/60_143952-1595686763.jpg)
433 Views
SolutionThe solution is mentioned below −Fixed capital = $ 2000 Working capital = $ 200 Salvage value = $ 1600 Book value = $ 1200 Tax rate = 28%Initial cash flows = FC+WC-S + (S-B) * T = 2000 + 200 – 1600 + (1600 – 1200) * 0.28 = 2000 + 200 – 1600 + 112 = 2312 – 1600 = = $712Here FC = fixed capital, WC = working capital, S = Salvage value, B = Book value, T = Tax rateA toy manufacturer company had following data New equipment cost = $ 700000 Salvage value = $ 475000 Additional expenses = $ 17500 Book value = $ 390000 Tax rate = 18% Calculate initial cash flowSolutionThe solution is explained below −Initial cash flows = FC+WC-S + (S-B) * T = 700000 + 17500 – 475000 + (475000 – 390000) * 0.18 = 700000 + 17500 – 475000 + 15300 = 732800 – 4750000 = $257800Here FC = fixed capital, WC = working capital, S = Salvage value, B = Book value, T = Tax rate
![Mandalika](https://www.tutorialspoint.com/assets/profiles/223769/profile/60_143952-1595686763.jpg)
3K+ Views
Initial cash flowsInitial cash flow is the cash required to start a project or business. This cash is estimated mainly at planning stages of a business or a project. Fixed capital, working capital, salvage value, tax rate, and book value are considered, while calculating the initial cash flows. Sometimes, the decision for estimation of initial cash flow depends on profitability of a project or strategic purpose. Generally, initial cash flows are negative number because at a start of project or a business, there will be no returns.FormulaInitial cash flows = FC+WC-S + (S-B) * T Here, FC = fixed capital, ... Read More