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TVM and Bond Valuation Case Study

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Business Case Study

TVM And Bond Valuation

Investment For Debt Maturity

Debt maturity is actually a date when an organizational debt repay date occurs and organization has to repay its principle debt amount along with all remaining mark up or interest amount. In this business case, debt maturity is in three years. Keeping in view the debt maturity period, case company has to invest minimum $498.3 million so that it has enough funds at the time of maturity.

Annual Operating Revenue After Specific Period Of Time

Annual operating revenue is actually a business sales or revenue which is generated through a day to day activities of company and by selling the organizational products and services. As per detail mentioned in the table, if a case company generate revenue and it grows uninterruptedly on annual basis than after 10 years, operating revenue of case company would be $1176.8 million which would be the result of continuous increase in revenue on annual basis.

TVM and Bond Valuation Case Study

EAR Investment Option

Case company has three different options for investment named as A, B and C. As per detail given in the table about the annual interest rate (APR), company has to choose the EAR of the investment option. EAR is actually an effective annual interest rate which is specifically earned through investment for a specific period of time. As per case company detail, 97% EAR investment option is considered to be suitable option for investment which should be chosen.

Monthly Installment Against 20 Years Loan For New Equipment

Case company wants to new equipment for the specific amount. For this purpose, bank has offered an amortized loan to case company at the rate of 4.5% APR, monthly compounding for the period of 20 years. Amortized loan is a specific type of loan in which principle amount is being paid over the life span of the loan and it is being paid on equal installments. As per detail available about this case company, if company will avail the loan for 20 years with equal monthly installments with monthly compound interest that company has to pay $79,125 on monthly basis to repay the complete loan in 20 years.

Yield To Maturity

Yield to maturity on bond is considered to be the best measure of the return rate as it contains all facets of investment including coupon rate, current yield and yield to maturity. As per case company, par value of the coupon bonds is $1,000 along with the remaining maturity time of 10 years. As per given detail, yield to maturity on the bonds is 9.42 percent per annum.

Current Bond Price

Current price of the bond is termed as the contemporary discounted worth of upcoming currency tributary of a bond. As per given detail if case company has par value of bond as $1,000 along with 8% coupon rate on quarterly basis and bond will mature in coming 7 years than according to current required return, current price of the bond will be $1426.41

Risk And Return Estimates

Case And Hypothetical Company Expected Return

TVM and Bond Valuation Questions Answers

Beta value having less than one means that the security is considered to be less unpredictable as compared to market and beta value with greater than one means that the value of security is considered to be more unpredictable in the scenario of market (Tibbles, 2016). In this company case, value of beta is assumed to be 6.5% as market risk premium and –0.25 beta value for the hypothetical company as on March 30, 2018. By keeping in view this scenario with 10 years Australian Treasury bond the case company’s expected return on current beta value will be 7.52% whereas for the hypothetical company it will be 10.15% expected return.

Portfolio Expected Return And Beta

TVM and Bond Valuation Questions Answers

By using the data available in the first part of this question, portfolio weight is considered to be equal for both case company and hypothetical company. As per this detail, contribution to portfolio expected return for case company is 3.76% and for hypothetical company, it is calculated as 5.08%. Similarly, contribution to portfolio beta for case company will be 0.33 and for hypothetical company, it will be –0.13 for current scenario. Portfolio expected return for this scenario will be 8.84% and 0.20 will be portfolio expected beta.

Risk And Return Analysis

Interpretation Of Risk And Return Measures

MYOB means mind your own business. Basically this company is publically limited which trade as MYO in the ASX market. This company is belonging to information technology that develops different accounting soft wares for the high level users. Many different companies also present in the market to present the different accounting software but due to its quality work company capture its market share in such a tough environment (Cox, 2018).

Now according to give information, as mention in the question, risk free rate is that rate which company has to earn profit without any risk or threat. Company is very productive and has a good reputation the market. Its share price fluctuates with sufficient changes but still it can earn profit in the market. Market risk premium shows that at what rate market can give you profit generating facilities or path with different competitors. Company beta show that company is working in tough condition and very difficult face in case of run its business further.

Hypothetical beta of company is going to be negative, which show that company has not capacity to move in the competitive market environment.  After all calculation we get portfolio expected return and portfolio beta, we realize that portfolio expected return is higher than market risk premium which show that company has a chance to reenter in the market with full potential and compete with different technology companies. Portfolio beta show that positive capacity appears in the company, which also defines that company, has skill and capability to move in the market with all difficult situations (Nisen, 2012).

Conclusion

Summing up all the points we can say that this case is concerned with the most important factor of making the law cases essential and as well as the cases are very much important to deal with the facts and the figures of the cases. The law is that field that deals with the solution of the difficult cases in terms of making them very much easy and making their results efficient by looking at all the aspects of the case that what positive and what negative aspects they have. All the cases that are deals in the courts on the daily basis are recorded and all the evidences are being maintained by the court rooms.

All the essential things are commonly known as the evidences in the courts for the case that is going to be heard in the courts. The cases are going to be deals under the prosecutor and the lawyers by both the parties as well as they are going to manage the workings of the people. The court cases sometimes became very much sensitive that they are going to be handled very much carefully and sensitively. The matters that are discussed in the courts are related to the case and all the matters are discussed under the laws made by them. In order to do the positive results in the court these matters must be discussed very much carefully and easily.

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References
  • Cox, M. Z. (2018). Green Leaf Grocery – Executive Compensation Case Study. Journal of business case study .
  • Nisen, M. (2012, October 8). Business Insider. Retrieved from 15 Lessons Everyone Learns At Business School: http://www.businessinsider.com/most-important-business-case-studies-2012-10
  • Tibbles, M. (2016). What are business case studies? Library journal of business .

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