Corporate Finance (Research Paper Sample)

Corporate Finance By (name) Course Professor’s Name Institution Location of Institution Date Corporate Finance Shares can be defined as units of ownership of interest in a financial asset that offers equal circulation in any amount of profits realized by the company if any which are given as dividends. A company will either issue any of the two types of shares; ordinary shares or preferred shares. The main difference between this two types of shares is that for common shares there is shareholders’ inclusion voting for their management while for preferred shares, the shareholders have no right of voting CITATION Gru02 \l 1033 (Grullon, 2002). If company decides to include an ordinary share with nominal value of £1 and premium value of £0.5, this will include the total right of voting by the ordinary shareholders. Lack of voting rights to shareholder is seen as a drawback but the company will consider it an advantage. Total inclusion of voting rights to shareholders will dilute the ownership of the business and the company will not be selling the shares without seeking for views from the shareholders like it will do for preferred shares. For companies, supplying ordinary shares is an important technique of raising capital to fund development without necessarily experiencing too heavy debt. Unlike subsidy debt, shareholder speculations does not require repayment at a later date, though this weakens the ownership of the company CITATION And08 \l 1033 (Andres, 2008). Under normal market circumstances, shareholders do presumes returns on their capital investments, through either payment of dividend or stock growth. For instance, a share bought at £1 and having the knowledge that the market has selling figure of £1.50, then we can say that the stockholder has realized a 5% profit on the share. But the company always have a buy back clause of some or all of its unsettled shares if it no longer require equity of capital, thus merging ownership and raising the value of shares that will still be available by decreasing the supply of shares. Also for investors, putting their money in the stock market are subject to a moderately forthright technique of generating income. While profits are not guaranteed, practically anyone can open a trading account online to buy and sell shares in the public trading stock. Additionally, to its simplicity of transacting, investing in common shares has the possibility of infinite gains, whereas the possibility of losing is limited to the first invested amount CITATION Bla06 \l 1033 (Black, 2006). Selling shares at high prices than the initial buying price leads to the investor getting a capital gain. However, the contrary can happen also; shareholders will realize a loss in capital if they sell shares less than what they paid for them. Both the options are purposed to lead a company to the maximum realization of profit in its capital. Since Slushy Snow Limited aims at paying its outstanding loans at the end of leasing period, it can be advised to select preferred shares overs ordinary shares. An investment proposal may be defined as a document organized by a sponsor of a new investment project, or can also be organized by the management of already existing company for the potential investors and money lenders. An investment proposal is supposed to be evaluated thoroughly based on the objectives and goals of the company before it is implemented. Vacances SA limited as a company will have to follow some techniques of evaluation to determine how profitable a proposal can be to it before allowing investors into their environment. In the entire lifetime of a project, sellers frequently send proposals to buyers with optimisms of being given the project. Also in many circumstances a buyer gets numerous proposals from potential sellers, therefore the buyer has to choose the right suppliers can be challenging CITATION Gol10 \l 1033 (Gollier, 2010). The methods of investment proposal evaluation that were employed by Vacances SA in this case that is the net present value (NPV) and payback method are most commonly used by the existing firms. Vacances SA also insists that the investment evaluation scenario analysis based upon both an optimistic and a pessimistic scenario in terms of future outcomes. In addition to that, the company also presumes that investments proposals must be accompanied by an assessment of the key risks associated with the proposal and the ways in which these risks will be managed CITATION Mac10 \l 1033 (Mackevicius, 2010). Net present value (NPV) is the variance between cash inflows present value and cash outflows present value that is an outcome of undertaking a certain project. Under this method of evaluation the company is advised to go ahead and undertake a project with a positive present value and reject any project that will have a negative present value CITATION Ziz14 \l 1033 (Zizlavsky, 2014). For instance, Vacances SA has set aside £25,000 for market research and surveyors’ fees, £10,000 paying the fireworks display company, £1,064,000 for infrastructure investment; this will be bring to approximately £1,099,000 total outflows. Also on the other hand, assuming the number of visitors will be as confirmed by the findings of the market research to be 84,000 and also that the revenue from the new slope will be in the form of entrance fees, charging at a rate of £77 per head then the assumed amount of inflows will be £6,468,000, then the net present value (NPV) will be the difference between £6,468,000 and £1,099,000; then NPV is equal to £5,369,000. Therefore Vacances SA can go ahead and undertake the project since the present value is positive. Net Present Value is very advantageous because it takes account of time value money emphasizing more on earlier cash flows covering all the cash flows involved all through in the life of the project; the use of discounting minimizes the influence of long term and less likely cash flows CITATION Fla05 \l 1033 (Flaig, 2005). Payback period is an investment evaluation method that tells the amount of time a project takes to repay initial investment. Payback is used to estimate in terms of months and years, however any period can be put in place depending on the life cycle of the project for example weeks, and month payback is estimated by breaking down the initial investment value based on the amount of annual inflow until all the capital is exhausted . The amount of income is either constant or changes after every trading period. Constant income is signified by even annual cash flows. Under this circumstance payback period is calculated directly by dividing the cost of investment by the constant cash flow of the project. For example, Vacances SA had indicated an approximate investment amount of £5,369,000. Therefore, if we also take the annual cash flow to be constant as £1,099,000, then the payback period will be given by the quotient between £5,369,000 and £1,099,000; which gives 4.88 years approximately 5 years. On the other hand, uneven cash flows means that the project generates fluctuating annual cash flows. Under this circumstance the, the payback period is estimated by getting the difference between the investment amount and the cash flows succeeding-ly until the capital invested has been recovered wholesomely CITATION Bie06 \l 1033 (Biezma, 2006). Research has indicated that project proposal evalua...