Tuesday, 26 April 2011
assignment
one word Hard, I knew this wasnt going to be easy,ive read the article dozens of times, attended the lectures, printed some information off but nows the time of trying to piece it all together. What we have learnt in the lectures does make sense in a fashion and it all pieces together the assignment, its just getting the right words to critically analyse it. I now understand there is a natural link between the blogs and the lecture notes and Glen Arnolds book, Understanding value is a mindboggling concept for a businessman and the link to understanding value and managing risk is the key to picking the right cash flow and creating the right hurdle you need when undertaking a new business venture. I just hope i am seeing these concepts in the right light to help me produce a valid assignment.
Monday, 18 April 2011
Blog 10
Dividends are the main focus from this weeks lecture, I missed the previous weeks lecture, But reading the notes from powerpoint i know the two lectures are understanding the core concepts of dividends. The theory from Modigilani and Millar argue that dividends are irrelevant because investors do not really care what they get whether it is a capital gain or dividends they just want the overall thing. After attending the lecture and reading the concepts, I disagree with their theory because dividends are relevant, Because why would they spend so much money paying dividends?.
Their view is questionable, M&M'S take on it would work if everything in the financial world is ok eg- no risk and no problems. Dividends are important because it gives an insight into a companys performance. The traditional view is high dividends equals good news, low dividends equals bad news but that might not always be the case as markets especially in the UK work on short term. Investors would prefer to have a stable payout at one level so they have security in dividends, not one year high, one year low as this creates uncertainty.
M&M'S theory promotes a fluctuating dividend because it isnt considering going bad. M&S is a good example of promoting a stable dividend and it proved M&M'S theory wrong that dividends dont show a signal to their customers, As M&S kept reserves so that they could pay out a stable return in bad years so people did not know any different, as no payment one year may show risk. They would not want this as M&S's message they send out to customers is a reputable one and that it is reliable for as long as people want to invest and stay with them.
Their view is questionable, M&M'S take on it would work if everything in the financial world is ok eg- no risk and no problems. Dividends are important because it gives an insight into a companys performance. The traditional view is high dividends equals good news, low dividends equals bad news but that might not always be the case as markets especially in the UK work on short term. Investors would prefer to have a stable payout at one level so they have security in dividends, not one year high, one year low as this creates uncertainty.
M&M'S theory promotes a fluctuating dividend because it isnt considering going bad. M&S is a good example of promoting a stable dividend and it proved M&M'S theory wrong that dividends dont show a signal to their customers, As M&S kept reserves so that they could pay out a stable return in bad years so people did not know any different, as no payment one year may show risk. They would not want this as M&S's message they send out to customers is a reputable one and that it is reliable for as long as people want to invest and stay with them.
Sunday, 10 April 2011
Blog 9
Impact on risk-and the nature of investment appraisal tools.
In the lecture today we have been looking at payback,net present value and rate of return. We would need to find out that the objective is MSW, With a cash flow you need to find the mark which was the initial investment and that would mean you start getting payback. To consider a project you need to move away from profit as a key benchmark. NPV is the best method when choosing an investment.
Some business sectors are riskier than others, You would use the beta value which is the calculated risk for each industry. The higher the risk the higher the return. Projects can be sensitive when costs increase, You need to make sure that it is still viable. A sensitivity analysis needs to be undertaken, An example of this would be the oil industry as this is sensitive at the moment with the libyian crisis. Costs may go up due to importing into the UK and shortages of oil. When a hurdle rate is set a premium for business risk needs to be considered as there would be an uncertainty, A fair market would be a price that is appropriate to that industry. You would never accept a project lower than this but every project you take on it will affect your weighting cost of capital so you will have to re-run your figures every time you do a new project and im sure that would definately fluctuate within the oil industry.
In the lecture today we have been looking at payback,net present value and rate of return. We would need to find out that the objective is MSW, With a cash flow you need to find the mark which was the initial investment and that would mean you start getting payback. To consider a project you need to move away from profit as a key benchmark. NPV is the best method when choosing an investment.
Some business sectors are riskier than others, You would use the beta value which is the calculated risk for each industry. The higher the risk the higher the return. Projects can be sensitive when costs increase, You need to make sure that it is still viable. A sensitivity analysis needs to be undertaken, An example of this would be the oil industry as this is sensitive at the moment with the libyian crisis. Costs may go up due to importing into the UK and shortages of oil. When a hurdle rate is set a premium for business risk needs to be considered as there would be an uncertainty, A fair market would be a price that is appropriate to that industry. You would never accept a project lower than this but every project you take on it will affect your weighting cost of capital so you will have to re-run your figures every time you do a new project and im sure that would definately fluctuate within the oil industry.
Tuesday, 5 April 2011
The budget
The budget was announced on March 23rd, This to me was very interesting, The fuel duty was to be cut by 1p per litre. What should have been done to help the economy out more was to cut VAT on petrol so that way tax on oil companies will not bang it back onto the customers at the petrol pump.
Personal tax allowance rises by £630 to £8,105 in April 2012 this will still not help long term as cost of living is rising and people are living longer and in-turn paying more tax. This shows by the next announcement of state pension going up to the age of 66 by 2020. Borrowing is to fall to 122bn next year but would this really be true after events not so long ago that happened in Ireland and Portugal, with the collapse of the economy. My evaluation of this would be that surely borrowing would have to increase to help the EU out so that a depression would not happen as countries begin to collapse the euro will be majorly damaged.
The budget also announced that 100,000 more work experience placements will happen over the next few years but without financial stability there will be no growth which means no jobs.There is uncertainty and with that comes risk. Another step in the wrong direction for creating MSW for any company.
Personal tax allowance rises by £630 to £8,105 in April 2012 this will still not help long term as cost of living is rising and people are living longer and in-turn paying more tax. This shows by the next announcement of state pension going up to the age of 66 by 2020. Borrowing is to fall to 122bn next year but would this really be true after events not so long ago that happened in Ireland and Portugal, with the collapse of the economy. My evaluation of this would be that surely borrowing would have to increase to help the EU out so that a depression would not happen as countries begin to collapse the euro will be majorly damaged.
The budget also announced that 100,000 more work experience placements will happen over the next few years but without financial stability there will be no growth which means no jobs.There is uncertainty and with that comes risk. Another step in the wrong direction for creating MSW for any company.
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