External Factors and Political Factors †Free Samples to Students

Question: Discuss about the External Factors and Political Factors. Answer: Introdution: MFC is required to replace the existing ferries and seeks to undertake project for the same. They are required to determine the required rate of return for which they are facing difficulties and randomly using the required rate of return at 10%. An organization named Adsteam Limited is similar to MFC that has determined equity cost of capital by considering risk premium along with unsystematic and systematic risks. Using equity cost of capital as arrived by Adsteam Limited should be used by MFC, as it is feasible. Hence, appropriate rate of return that MFC should use for project evaluation is 12%. MFC is undertaking project for replacing their existing ferries and report deals with evaluation of project using the technique of capital budgeting. This helps in determining projects feasibility. Operation of ferries is done on two sites of MFC that is Bay site and Greenwich site. However, an operation of replaced ferries that is four jet car ferries is suitable on Bay site. Required rate of return or equity cost of capital for evaluation of project is 12%. Total initial outlay incurred by MFC stood at $ $ 7226200 and the equity cost of capital is 12% that is used for determining net present value of project. Net present value of for cat ferries involves in the business activities of MFC is arrived by considering time value of money that is computed at $ 29808467. Figure is suggestive of the fact that future cash inflow from undertaking project of replacing ferries is more than initial outlay made (Brigham 2014). Conclusion: From the above analysis and computation, it can be concluded that project is feasible and MFC should be accepted. This is so because, net present value of four cat ferries is positive. ARR gives the clear picture of profitability of any project and total lifecycle of investment is taken into consideration. However, accounting rate of return does not take into account time vale of money. Under this technique of evaluation of investment project, benefits acquired by firms from abandonment of any equipment replaced by new equipment are not considered under this technique. ARR does not take into account determination of average investment levels and they should not be used as decision-making criteria as the cash inflow of any project is not taken into account (Arnold 2013). Furthermore, chances are there that organization can reject some profitable projects if the current earnings are more than value of accounting rate of return. An organization is required to consider many factors while undertaking the project of replacing any parts involved in functioning. Some of the factors that should be consider are internal to organization as well as they are external. External factors are political factors, some macro economic factors such inflation and general environment in which organization operates. Quality and change control involved in managing four cat ferries needs to be considered while evaluating the project feasibility (Bodie 2013). References: Arnold, G., 2013.Corporate financial management. Pearson Higher Ed. Bodie, Z., 2013.Investments. McGraw-Hill. Brigham, E.F., 2014.Financial management theory and practice. Atlantic Publishers Distri. Lasher, W.R., 2013.Practical financial management. Nelson Education.