Finance Principles

Individual Assignment (30%)

In this assignment you are an entrepreneur ready to start your own business. You will use the various skills learnt in the course to evaluate if you should accept or reject your business idea. An 8-page report is to be handed in according to details below.

Pick a business idea of your choice (New Business) which you intend to start and do the following:

  1. Evaluate the local markets in light of stock markets, interest rates, currencies and commodities. Explain how these elements would affect your proposed business.

  2. Financial management

  • Choose a form of business. Describe why?

  • Project cash flows for the next five years (derive from assumptions about revenues and expenses)- use excel spreadsheet to perform this task

  • Discuss sources of financing for the project

3. Risk analysis- Evaluate the risk of this venture and compare with public companies in the same industry use CAPM to discover the required return on equity.

4. Cost of capital- Determine the cost of capital and explain its effects on rates of return. You should use this for discounting cash flows in the valuation step.

5. Valuation-

  • Value these cash flows based on corporate finance principles. Use multiple methods (including multiple growth models).

  • Give final accept/reject recommendation and explain reasons

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