Present Value

Selling scathe The sell price would equal to the eye of the potential meshs doable by the purchased asset. In order to turn over a proper amount with respect to the time apprize and including the foodstuff risk and risk premium, the profits swallow to be discounted to the stage encourage using the attach discount localize. The sum of the discounted coin flows for the next twain years of the assets useful life is $299,021.75. The equal material body re awards a fair price for purchasing the asset, as it includes potential benefits realizable by the postment, as well as accounts for the possible risks on the backside of the fixed discount rate. Price adjustment under higher evaluate and inflationThe higher inflation rate would require the appropriate price markup. mart interest evaluate as well as the risk rates are higher under the growing inflation. Therefore, the price of the asset go forth be maturationd, by marking the adjusting the dollar value using the app ropriate inflation rate.LocationIf the asset would be located in the area with runny governmental and economic situation, it would exist less(prenominal). The unexpected and sharp market prices fluctuations could neuter the projected profit margins. The implementation of long-term contracts would be under a threat. However, with completely two years of potential profits, the latter argument does not represent the most critical issue in determining the price level. The risks associated with the potential benefits are significantly higher than in the case of in operation(p) in a stable economy. Consequently, the asset would lose some of its value, and its selling price would be lower.BondsThe goal of the firm is to maximize present stockholder value. This goal implies that projects should be undertaken that result in the positive net present value, that is the present value of the expected cash inflow less the present value of the required capital expenditures. Using net present value as a measure, capital budgeting involves selecting those projects that increase the value of the firm because they have a positive NPV. The quantify and growth rate of the incoming cash flow is important only to the extent of its impact on NPV. The increase in the net present value means the decrease in the discount rate. This data can be observed in the fiscal plan section, using cash flows, where the present value of a cash flow stream is equal to the sum of the present values of the somebody cash flows. Moreover, in determination of the net present value cost of capital percentage can be used.The cost of capital for whatsoever investment is the rate of return capital providers would expect to receive if they would invest their capital elsewhere (opportunity cost).The annual financial reports for the two companies suggest at a first glance that Cisco systems would be a much sound investment, as it represents a more favourable income statement balance. universal Motors Co mpany shows very low profits for the last periods, however its profit margins are steadily growing. A significant loss, which negatively affects the current realization rating of the company, is realized in prior periods due to discontinuing operations and losses on requisitions. However, the companys liquidity shows a close to labors median value. oecumenical Motors shows a more confident general stability of parentage operation, while Cisco system greatly depends on innovation and research and development, which is associated with greater costs and bigger risk involved.However, the melodic phrase indicates less dependency on fixed costs, which allows to attain not only technological or innovative advantage on the market, but in like manner to win better trading bargains offering more favourable prices to customers. The business operations of Cisco largely depend on the appropriate timing and immediate reaction.Cisco should have a higher discount rate than oecumenical Moto rs, because it requires a more profound analysis for determining the potential surgical procedure of the company. The higher risks associated with the investment should be accordingly accounted for including the calculation of the market rate and the risk premium. General Motors offers lower returns but higher stability, which means less risk. Making a long term investment in bonds with the same pay rate would be more sound and reasonable for General Motors Company, as it provides a less risky opportunity of return. However, its benefits are peculiar(a) compared to the potential suggested by the Cisco systems company.