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Business Expansion Tips by the top business coach Ratish Pandey
Running a specialized business offers you a niche in the market. The very nature of business requires you to identify your Unique Selling Proposition (USP) and focus all your communication efforts on the USP, giving you high visibility among your target audience. Like all good things, it comes with its share of highs and lows.
By EthiqueAdvisory4 years ago in Education
A letter to my kids principal: Praising Greatness!
Hello Mr. Principal, It was always lovely to see you at school with your children, as they helped you with fundraisers and other things within the school. Mr. Principal, you are an excellent example, and from what we know of your wife, so is she.
By Irene Mielke4 years ago in Education
HISTORY OF SWIMMING POOLS
Swimming is, by far, one of the most popular pastimes in the world. It is also one of the oldest. As an organized activity, swimming dates back to around 2500 BC. Swimming was immensely popular in ancient Egypt, and there are a number of relics from the period which depict the act of swimming in vivid and awe-inspiring detail. In ancient Greece and Rome, swimming was taught to boys as part of their elementary school curriculum. Furthermore, the first known public swimming pools were built in Rome.
By Usama Husnain4 years ago in Education
Pen vs Pipe: Is Vape Healthy?
Vape is healthy, RIGHT? WRONG. Vape is at least as bad for you as smoking and is probably a whole lot worse. Whenever new products start to hit market shelves with astonishing speed and volume, I always have concerns about the hype versus reality. This topic is no exception.
By Chameleon Glass4 years ago in Education
Best 17 Ways To Make Money Online
1. Offer Your Pictures Do you possess photography skills or do you reside in a region where photographs are in demand? According to International Living, stock photography websites offer vast collections of images that cover practically any topic you can think of. So how does it function? Photographers can post their photographs to any one of many sizable databases, making them available for purchase by magazine editors, designers, or any business with a website. The beauty of stock websites is that images may be sold an unlimited number of times, allowing you to keep earning money with no further work.
By Mahmoud Alaa4 years ago in Education
Using Internal Rate of Return
The internal rate of return (IRR) evaluation method is akin to net present value because it is also based on the discounted cash flow principle. When using NPV, however, you always assign a discount rate. In the IRR method, you derive a discount rate through trial-and-error calculation. The IRR method attempts to determine the internal rate of return of a proposed capital investment by calculating the discount rate needed to bring the NPV to zero. Then, if the calculated rate of return is greater than the average cost of capital, the project is acceptable. If not, the project is rejected. By using a derived discount rate rather than an assigned rate, the IRR method eliminates one of the possible misuses of the NPV approach: arbitrarily using an unjustified hurdle rate. Nevertheless, the IRR method is still vulnerable to the basic flaws found in any evaluation system tied to discounted cash flow: namely, the wide margin for error in forecasting cash flows. Even with these caveats in mind, however, the IRR can be a useful tool in measuring the rate of return of a capital investment project. Once developed, an internal rate of return can be compared to that for other projects and to your company’s overall objectives, as well as the cost of capital. Net Cash Discount Factor Present Value Discount Factor Present Value Year Flow at 11% at 11% at 12% at 12% 0 ($60,000) — ($60,000) — ($60,000) 1 15,000 .901 13,515 .893 13,395 2 15,000 .812 12,180 .797 11,955 3 15,000 .731 10,965 .712 10,680 4 17,500 .659 11,532 .636 11,130 5 20,000 .593 11,860 .567 11,340 $22,500 $ 52 ($ 1,500) Illustration: Assume that ABC Company is considering a $60,000 capital investment in new equipment. Expected cash flows are the same, but this time we will be using the IRR evaluation method. From prior NPV calculations, we know that the internal rate of return is somewhere between 11 percent, where a narrow profit was recorded, and 12 percent, which would certainly produce a loss. (See box for the IRR calculation.) To find the exact rate, we interpolate. First, take the difference between the NPV at 11 percent and the NPV at 12 percent. In this case, the difference is $1,552. Next, divide the positive NPV of $52 by the $1,552 difference. Then add the quotient to the lower discount rate to get the internal rate of return, which equals 11.03 percent. In the IRR method, the higher the internal rate of return, the better. Therefore, with an 11.03 percent rate of return and average capital costs of only 8.8 percent, the ABC Company would be well advised to give this project close consideration. ➤ Observation: These are sound reasons for you to use all three capital spending evaluation methods described previously when preparing a capital budget. For instance, a payback analysis of the ABC Company project would disclose, at the outset, that this was a medium-risk project, with payback calculated in a little less than four years. In addition, the NPV analysis indicates that the new machinery will more than return its initial investment in the next five years. Finally, the project’s IRR stands well above the company’s hurdle rate. Because the project measures up favorably under all three evaluation scales, ABC Company management can be fairly confident that it will contribute to profits over the next several years. In short, there is no need for you to pick and choose among the three evaluation techniques. Each is designed to give you a different insight, and you can profit from using all three. Equally important, by looking at the investment from three angles, you avoid placing too much emphasis on one narrow fact. The As we have pointed out, a hurdle rate is the minimum acceptable rate of return for a capital spending project. Originally, the average cost of capital rate was considered the hurdle rate because no firm can afford to earn less than its capital costs for long. Over time, however, the concept of hurdle rates has changed. All-inclusive, company-wide hurdle rates are giving way to a more flexible approach. Some hurdle rates are classified according to risk; others are assigned according to informal guidelines; still others are related to the company’s strategic goals. As a result, there are no hard-and-fast rules for setting a hurdle rate. It should depend on your company’s objectives, the risk factor inherent in your business and the strength of your company’s financial underpinnings. Nevertheless, you should keep some basic considerations in mind when deciding on a suitable hurdle rate for a proposed project. 1. It should be based on reality. This may sound obvious, but in far too many firms, the hurdle point is the result of an arbitrary management decision. In some cases, the hurdle point is too high and results in lost investment opportunities. In others, it is set too low, which usually leads to a strain on profits. Your hurdle rate should always be close to your average cost of capital. You should consider the overall trend of capital costs. If, for instance, inflation and rising interest rates are likely to push capital costs higher, you may want to compensate by raising your hurdle rate. 2. It should bear some relationship to risk. Your hurdle rate should be adjusted to compensate for the risks inherent in the project. The hurdle rate for low-risk projects need not be as high as the rate for projects with above-average risks. This includes internal risks, such as familiarity with the process, market or facility. More importantly, it includes external risks: the state of the economy, the outlook for interest rates, inflation, the business climate and so forth. 3. It should be current. No hurdle rate should ever be set in stone. As financial markets change, your cost of capital will change with them. Review your hurdle rate at least once a year, and in volatile times, consider revising it every six months. As a matter of fact, it is common practice among major companies to calculate average capital costs on an annual basis. The information is then usually passed along to the various operating divisions or departments, with each determining its own hurdle rate.
By Daniel Joseph 4 years ago in Education
Using Net Present Value to Measure Return
If your company has not yet used the net present value (NPV) method of measuring the rate of return on a proposed capital investment project, chances are good that it will do so in the near future. During the past several years, NPV has become one of the most commonly used methods of capital investment evaluation.
By Daniel Joseph 4 years ago in Education
What Are Equity Costs?
Company managers generally view equity capital as cost free. Theoretically, you do not have to pay the capital back, so it’s free, particularly if your company does not intend to pay dividends that year. From a stockholder’s viewpoint, however, the outlook is different. Every dollar of earnings retained in the firm is a dollar denied to the stockholders. In a sense, it is a “hidden” cost for stockholders, almost akin to a new investment in the firm. The reason that stockholders maintain their investment is the promise of future dividends and/or capital appreciation (that is, an increase in share prices). Since both dividends and share price improvement depend on future earnings per share, it is the most important factor in determining your equity costs.
By Daniel Joseph 4 years ago in Education
Avoiding Common Pitfalls
No system for allocating capital resources is foolproof. You can, however, cut down on your chances of making a mistake by exploring the following alternatives when planning your capital investment proposal: ● Look for something better. Resist the tendency to assume that the proposals that bubble up from your subordinates are the best available. To strengthen your planning, solicit ideas from the widest possible range of departments. ● Be ready to branch out. Another common failing is the tendency to concentrate on the familiar when seeking fund allocations. Too often, innovative programs are equated with risky pro¬grams, and therefore disregarded. Always be ready to accept change if a sound business case can be made for it. ● Look to the longer term. In many firms, projects with a short payback period get the inside track. Management tends to think in terms of current-year results and overlooks projects that promise only long-term profit opportunities. However, the primary purpose of capital investment is to ensure the long-term profitability of your firm. Thus, while short-term profits are important, always leave room for projects that will pay off over the longer term—and be prepared to argue for them. ● Follow up on your capital program. Once a project has been approved, make an effort to ensure that it meets stated objectives. This will assist you in spotting problems early on and enhance the effectiveness of the program. Calculating Your True Capital Costs Before you can make an intelligent decision on a capital investment project, you will need to find out how much the project would cost. Then you must come up with a reasonable idea of the expected rate of return. Knowing these facts will tell you whether you’re in a strong position to request an allocation of your firm’s limited resources. Assessing the Cost of Debt Note that the interest rate on loans or bonds used in financing a project is affected by the nature of the firm’s other commitments. If a firm has committed itself to several high-risk projects, it will usually be required to pay a relatively high interest rate on a new undertaking, whether or not this venture is risky in itself. Other factors affecting a firm’s cost of debt include the company’s debt/equity position and the economic outlook for its industry. For these reasons, it is never safe to assume that the debt costs used to justify one project will be applicable to another. Each time you start to review a new project, take the time to find out your company’s current cost of debt from your firm’s finance department. Because interest expense is a deductible item, the cost of long-term debt should always be expressed as an after-tax figure. Apart from that, figuring your cost of debt is a fairly straightforward process. Merely use the rate of interest that your bank would charge for additional borrowing; apply your current tax rate to obtain the after-tax cost of your debt. Example: If your company is taxed at 34 percent and your interest rate on a new loan would be 12 percent, your after-tax debt cost comes to 7.9 percent (12 percent x 66 percent = 7.9 percent). What Are Equity Costs? Company managers generally view equity capital as cost free. Theoretically, you do not have to pay the capital back, so it’s free, particularly if your company does not intend to pay dividends that year. From a stockholder’s viewpoint, however, the outlook is different. Every dollar of earnings retained in the firm is a dollar denied to the stockholders. In a sense, it is a “hidden” cost for stockholders, almost akin to a new investment in the firm. The reason that stockholders maintain their investment is the promise of future dividends and/or capital appreciation (that is, an increase in share prices). Since both dividends and share price improvement depend on future earnings per share, it is the most important factor in determining your equity costs.
By Daniel Joseph 4 years ago in Education
