Perspective from Accounting and Finance

Question: Discuss about the Report for Perspective from Accounting and Finance. Answer: Payback Period Calculation Calculation of Payback Period Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Free Cash Flow -48408000 6378571 20527571 15833571 15524571 19230571 Cumulative Cash Flow -48408000 -42029429 -21501857 -5668286 9856286 29086857 Payback Period 4.365117049 Based on the above calculation, it can be said that the PBP (Payback Period) for the latest project is 4.36 years. 2. Profitability Index Calculation Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Discounted Cash Flow -48408000 5695153.06 16364454 11270023 9866145.8 10911942.7 Total Discounted Cash Flow 54107719.2 Initial Investment 48408000 Net Present Value 5699719.202 Profitability Index 1.118 From the particular above calculation, it can be said that the PI (profitability index) of the specified project is 1.118. IRR Calculation Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Discounted Cash Flow -48408000 5695153.06 16364454 11270023 9866145.8 10911942.7 IRR 3.727% The IRR (Internal Rate of Return) for the specified project is 3.727%. Net Present Value (NPV) Calculation Calculation of Net Present Value:- Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Sales Revenue 31040000 51410000 42195000 37830000 26190000 Variable Cost -13120000 -21730000 -17835000 -15990000 -11070000 Fixed Cost -5100000 -5100000 -5100000 -5100000 -5100000 Purchase of Manufacturing Equipment -34500000 Development Cost -7500000 Market Research -200000 Working Capital -6208000 Depreciation of Equipment -4928571 -4928571 -4928571 -4928571 -4928571 Net Income before Tax 7891429 19651429 14331429 11811429 5091429 Less: Tax @ 30% -2367429 -5895429 -4299429 -3543429 -1527429 Net Operating Income after Tax 5524000 13756000 10032000 8268000 3564000 Add: Depreciation on Equipment 4928571 4928571 4928571 4928571 4928571 Less: Change in Working Capital -4074000 1843000 873000 2328000 5238000 Add: Estimated sale of Equipment 5500000 Free Cash Flow -48408000 6378571 20527571 15833571 15524571 19230571 Required Rate of Return 12% 12% 12% 12% 12% Discount Factor 0.89285714 0.7971939 0.7117802 0.6355181 0.56742686 Discounted Cash Flow -48408000 5695153.06 16364454 11270023 9866145.8 10911942.7 Total Discounted Cash Flow 54107719.2 Initial Investment 48408000 Net Present Value 5699719.202 Sensitivity Analysis for the Changes in Price It has been found that if the SP (selling price) is considered at low rates, then the NPV (Net Present Value) of the particular project will also decline consequently (Balakrishnan, Watts and Zuo 2013). Moreover, it has been noted that for elevated SP (selling prices), the NPV will also be elevated. The analysis of the same has been shown below: Particulars Actual Option 1 Option 2 Option 3 Option 4 Unit Price ($) 485 460.75 448.62 509.25 521.38 NPV 5699719 1047685 -1278332 10351753 12677771 Sensitivity Analysis for the Changes in the Volume of Sales According to Brealey et al. (2012), if the selling price (SP) is equivalent and the volume of the sales becomes elevated than the estimated quantity of volume, the firm can earn higher amount of net present value from the specified project. On the other hand, if the sales volume is relatively lower, then, the net present value will get decreased consequently. The specified calculations are provided in the table below: Particulars Actual Option 1 Option 2 Option 3 Option 4 Sales Volume 389000 369550 359825 408450 418175 NPV 5699719 3083819 1775869 8315619 9623569 Potentiality of the New Project: Opined to Bebbington, Unerman and O'Dwyer (2014), when the net present value (NPV) of the project is considered as positive, a firm should take the project under consideration. Here, the organization Emu electronics should manufacture the smart phones as this will result into positive earnings. The reason behind this is that the calculated net present value is positive. Moreover, the payback period (PBP) of the particular project is also considered as attractive as the duration of the particular project for recovering the initial amount is relatively lesser. Penalty for Loss on Other Models: The loss takes place due to the decreased quantity of sale of the smart phone models that have been formerly launched is enclosed by the revenue that is generated by selling the new model of smart phones (Christensen et al. 2015). This new model of smart phone has been introduced into the market by the organization Emu Electronics. Thus, it can be said that if any loss takes place, then it will be enclosed by the due in order to sell the new model of the smart phones. In this circumstance, only the new smart phone model would be introduced into the market by the particular organization. Workings of the Calculation Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Sales Volume (Unit) 64000 106000 87000 78000 54000 Unit Price ($) 485 485 485 485 485 Sales Revenue 31040000 51410000 42195000 37830000 26190000 Variable Cost P.u. 205 205 205 205 205 Total Variable Cost 13120000 21730000 17835000 15990000 11070000 Total Fixed Cost 5100000 5100000 5100000 5100000 5100000 Net Working Capital 6208000 10282000 8439000 7566000 5238000 Change in Net Working Capital 4074000 -1843000 -873000 -2328000 -5238000 According to the Annual Report of the company Harvey Norman for the year 2015, the value of the accounts book of the equity of the particular organization is $ 2556.86 million as on June 30 of the year 2015. Moreover, for the year 2015, the annual report of the particular organization exhibits that as on June 30 of the year, 2016, the specified firm has the total liability of an amount of $ 1511.912 million. However, it has been found that out of this total amount of $ 1511.912 million, $ 688.556 million are considered as an interest bearing amount in nature (www.harveynormanholdings.com.au, 2016). The price of Harvey Norman stock on 5th of October in the year 2016 is AU $ 4.957. The market capitalization or the market value of equity of the firm Harvey Norman as on 5th of Octobetr in the year 2016 is AU$5.80 billion (Damodaran 2016) Moreover, on 5th of October in the year 2016, the firm Harvey Norman has about 1113.24376 million outstanding stocks (Au.finance.yahoo.com, 2016). The most current dividend that is paid by the firm Harvey Norman once in a year was an amount of $ 0.185 as on 7th of April in the year 2016. According to the dividend discount model one can use the data for calculating the present market value of the stock price of the organization Harvey Norman with the assistance of the Growth Rate. It is designed under the CAGR Model and the needed return rate by using the method CAPM (Deegan 2012). The Beta of the company Harvey Norman has been calculated as follows: Harvey Norman SP 500 Index Date Adj Closing Price Return Adj Closing Price Return 10/5/2015 3.42291 1987.050049 10/6/2015 3.4317 0.26% 1979.920044 -0.36% 10/7/2015 3.4757 1.28% 1995.829956 0.80% 10/8/2015 3.4845 0.25% 2013.430054 0.88% 10/9/2015 3.5021 0.51% 2014.890015 0.07% 10/12/2015 3.4581 -1.26% 2017.459961 0.13% 10/13/2015 3.36131 -2.80% 2003.689941 -0.68% 10/14/2015 3.41411 1.57% 1994.23999 -0.47% 10/15/2015 3.39651 -0.52% 2023.859985 1.49% 10/16/2015 3.39651 0.00% 2033.109985 0.46% 10/19/2015 3.33491 -1.81% 2033.660034 0.03% 10/20/2015 3.30852 -0.79% 2030.77002 -0.14% 10/21/2015 3.29092 -0.53% 2018.939941 -0.58% 10/22/2015 3.29972 0.27% 2052.51001 1.66% 10/23/2015 3.35251 1.60% 2075.149902 1.10% 10/26/2015 3.39651 1.31% 2071.179932 -0.19% 10/27/2015 3.5021 3.11% 2065.889893 -0.26% 10/28/2015 3.64289 4.02% 2090.350098 1.18% 10/29/2015 3.66771 0.68% 2089.409912 -0.04% 10/30/2015 3.64027 -0.75% 2079.360107 -0.48% 11/2/2015 3.62198 -0.50% 2104.050049 1.19% 11/3/2015 3.61283 -0.25% 2109.790039 0.27% 11/4/2015 3.64027 0.76% 2102.310059 -0.35% 11/5/2015 3.55796 -2.26% 2099.929932 -0.11% 11/6/2015 3.65857 2.83% 2099.199951 -0.03% 11/9/2015 3.57625 -2.25% 2078.580078 -0.98% 11/10/2015 3.50308 -2.05% 2081.719971 0.15% 11/11/2015 3.47564 -0.78% 2075 -0.32% 11/12/2015 3.58539 3.16% 2045.969971 -1.40% 11/13/2015 3.51222 -2.04% 2023.040039 -1.12% 11/16/2015 3.41161 -2.86% 2053.189941 1.49% 11/17/2015 3.48478 2.14% 2050.439941 -0.13% 11/18/2015 3.51222 0.79% 2083.580078 1.62% 11/19/2015 3.63113 3.39% 2081.23999 -0.11% 11/20/2015 3.7043 2.02% 2089.169922 0.38% 11/23/2015 3.7043 0.00% 2086.590088 -0.12% 11/24/2015 3.7043 0.00% 2089.139893 0.12% 11/25/2015 3.7043 0.00% 2088.870117 -0.01% 11/27/2015 3.71344 0.25% 2090.110107 0.06% 11/30/2015 3.73174 0.49% 2080.409912 -0.46% 12/1/2015 3.79576 1.72% 2102.629883 1.07% 12/2/2015 3.71344 -2.17% 2079.51001 -1.10% 12/3/2015 3.67686 -0.99% 2049.620117 -1.44% 12/4/2015 3.64027 -1.00% 2091.689941 2.05% 12/7/2015 3.62198 -0.50% 2077.070068 -0.70% 12/8/2015 3.64942 0.76% 2063.590088 -0.65% 12/9/2015 3.65857 0.25% 2047.619995 -0.77% 12/10/2015 3.61283 -1.25% 2052.22998 0.23% 12/11/2015 3.60369 -0.25% 2012.369995 -1.94% 12/14/2015 3.50308 -2.79% 2021.939941 0.48% 12/15/2015 3.45735 -1.31% 2043.410034 1.06% 12/16/2015 3.51222 1.59% 2073.070068 1.45% 12/17/2015 3.55796 1.30% 2041.890015 -1.50% 12/18/2015 3.63113 2.06% 2005.550049 -1.78% 12/21/2015 3.65857 0.76% 2021.150024 0.78% 12/22/2015 3.74088 2.25% 2038.969971 0.88% 12/23/2015 3.73174 -0.24% 2064.290039 1.24% 12/24/2015 3.68601 -1.23% 2060.98999 -0.16% 12/28/2015 3.68601 0.00% 2056.5 -0.22% 12/29/2015 3.86893 4.96% 2078.360107 1.06% 12/30/2015 3.91467 1.18% 2063.360107 -0.72% 12/31/2015 3.8232 -2.34% 2043.939941 -0.94% 1/4/2016 3.96954 3.83% 2012.660034 -1.53% 1/5/2016 3.94211 -0.69% 2016.709961 0.20% 1/6/2016 3.86893 -1.86% 1990.26001 -1.31% 1/7/2016 3.81406 -1.42% 1943.089966 -2.37% 1/8/2016 3.80491 -0.24% 1922.030029 -1.08% 1/11/2016 3.85979 1.44% 1923.670044 0.09% 1/12/2016 3.81406 -1.18% 1938.680054 0.78% 1/13/2016 3.99698 4.80% 1890.280029 -2.50% 1/14/2016 3.8232 -4.35% 1921.839966 1.67% 1/15/2016 3.86893 1.20% 1880.329956 -2.16% 1/19/2016 3.92381 1.42% 1881.329956 0.05% 1/20/2016 3.92381 0.00% 1859.329956 -1.17% 1/21/2016 3.96954 1.17% 1868.98999 0.52% 1/22/2016 3.99698 0.69% 1906.900024 2.03% 1/25/2016 4.03357 0.92% 1877.079956 -1.56% 1/26/2016 4.03357 0.00% 1903.630005 1.41% 1/27/2016 3.98784 -1.13% 1882.949951 -1.09% 1/28/2016 3.97869 -0.23% 1893.359985 0.55% 1/29/2016 4.06101 2.07% 1940.23999 2.48% 2/1/2016 4.11589 1.35% 1939.380005 -0.04% 2/2/2016 4.00613 -2.67% 1903.030029 -1.87% 2/3/2016 3.85979 -3.65% 1912.530029 0.50% 2/4/2016 3.93296 1.90% 1915.449951 0.15% 2/5/2016 3.92381 -0.23% 1880.050049 -1.85% 2/8/2016 3.9604 0.93% 1853.439941 -1.42% 2/9/2016 3.99698 0.92% 1852.209961 -0.07% 2/10/2016 3.99698 0.00% 1851.859985 -0.02% 2/11/2016 4.02442 0.69% 1829.079956 -1.23% 2/12/2016 3.99698 -0.68% 1864.780029 1.95% 2/16/2016 4.05186 1.37% 1895.579956 1.65% 2/17/2016 4.10674 1.35% 1926.819946 1.65% 2/18/2016 4.28052 4.23% 1917.829956 -0.47% 2/19/2016 4.24394 -0.85% 1917.780029 0.00% 2/22/2016 4.28052 0.86% 1945.5 1.45% 2/23/2016 4.2165 -1.50% 1921.27002 -1.25% 2/24/2016 4.17077 -1.08% 1929.800049 0.44% 2/25/2016 4.2165 1.10% 1951.699951 1.13% 2/26/2016 4.14333 -1.74% 1948.050049 -0.19% 2/29/2016 4.37199 5.52% 1932.22998 -0.81% 3/1/2016 4.4543 1.88% 1978.349976 2.39% 3/2/2016 4.40857 -1.03% 1986.449951 0.41% 3/3/2016 4.43601 0.62% 1993.400024 0.35% 3/4/2016 4.39028 -1.03% 1999.98999 0.33% 3/7/2016 4.31711 -1.67% 2001.76001 0.09% 3/8/2016 4.31711 0.00% 1979.26001 -1.12% 3/9/2016 4.34455 0.64% 1989.26001 0.51% 3/10/2016 4.34455 0.00% 1989.569946 0.02% 3/11/2016 4.34455 0.00% 2022.189941 1.64% 3/14/2016 4.32625 -0.42% 2019.640015 -0.13% 3/15/2016 4.27138 -1.27% 2015.930054 -0.18% 3/16/2016 4.23479 -0.86% 2027.219971 0.56% 3/17/2016 4.28967 1.30% 2040.589966 0.66% 3/18/2016 4.27138 -0.43% 2049.580078 0.44% 3/21/2016 4.24394 -0.64% 2051.600098 0.10% 3/22/2016 4.28967 1.08% 2049.800049 -0.09% 3/23/2016 4.28967 0.00% 2036.709961 -0.64% 3/24/2016 4.28967 0.00% 2035.939941 -0.04% 3/28/2016 4.28967 0.00% 2037.050049 0.05% 3/29/2016 4.24394 -1.07% 2055.01001 0.88% 3/30/2016 4.30796 1.51% 2063.949951 0.44% 3/31/2016 4.29882 -0.21% 2059.73999 -0.20% 4/1/2016 4.16162 -3.19% 2072.780029 0.63% 4/4/2016 4.2165 1.32% 2066.129883 -0.32% 4/5/2016 4.13418 -1.95% 2045.170044 -1.01% 4/6/2016 4.18906 1.33% 2066.659912 1.05% 4/7/2016 4.18497 -0.10% 2041.910034 -1.20% 4/8/2016 4.15637 -0.68% 2047.599976 0.28% 4/11/2016 4.10871 -1.15% 2041.98999 -0.27% 4/12/2016 4.16591 1.39% 2061.719971 0.97% 4/13/2016 4.12777 -0.92% 2082.419922 1.00% 4/14/2016 4.15637 0.69% 2082.780029 0.02% 4/15/2016 4.24217 2.06% 2080.72998 -0.10% 4/18/2016 4.20404 -0.90% 2094.340088 0.65% 4/19/2016 4.14684 -1.36% 2100.800049 0.31% 4/20/2016 4.11824 -0.69% 2102.399902 0.08% 4/21/2016 4.08011 -0.93% 2091.47998 -0.52% 4/22/2016 4.08011 0.00% 2091.580078 0.00% 4/25/2016 4.08011 0.00% 2087.790039 -0.18% 4/26/2016 4.09918 0.47% 2091.699951 0.19% 4/27/2016 4.15637 1.40% 2095.149902 0.16% 4/28/2016 4.2517 2.29% 2075.810059 -0.92% 4/29/2016 4.27077 0.45% 2065.300049 -0.51% 5/2/2016 4.28984 0.45% 2081.429932 0.78% 5/3/2016 4.44236 3.56% 2063.370117 -0.87% 5/4/2016 4.50909 1.50% 2051.120117 -0.59% 5/5/2016 4.48049 -0.63% 2050.629883 -0.02% 5/6/2016 4.51863 0.85% 2057.139893 0.32% 5/9/2016 4.51863 0.00% 2058.689941 0.08% 5/10/2016 4.48049 -0.84% 2084.389893 1.25% 5/11/2016 4.46143 -0.43% 2064.459961 -0.96% 5/12/2016 4.44236 -0.43% 2064.110107 -0.02% 5/13/2016 4.44236 0.00% 2046.609985 -0.85% 5/16/2016 4.49003 1.07% 2066.659912 0.98% 5/17/2016 4.47096 -0.42% 2047.209961 -0.94% 5/18/2016 4.3375 -2.99% 2047.630005 0.02% 5/19/2016 4.3661 0.66% 2040.040039 -0.37% 5/20/2016 4.44236 1.75% 2052.320068 0.60% 5/23/2016 4.3375 -2.36% 2048.040039 -0.21% 5/24/2016 4.32797 -0.22% 2076.060059 1.37% 5/25/2016 4.38516 1.32% 2090.540039 0.70% 5/26/2016 4.3375 -1.09% 2090.100098 -0.02% 5/27/2016 4.3089 -0.66% 2099.060059 0.43% 5/31/2016 4.34703 0.88% 2096.949951 -0.10% 6/1/2016 4.3089 -0.88% 2099.330078 0.11% 6/2/2016 4.21357 -2.21% 2105.26001 0.28% 6/3/2016 4.21357 0.00% 2099.129883 -0.29% 6/6/2016 4.20404 -0.23% 2109.409912 0.49% 6/7/2016 4.23264 0.68% 2112.129883 0.13% 6/8/2016 4.2803 1.13% 2119.120117 0.33% 6/9/2016 4.34703 1.56% 2115.47998 -0.17% 6/10/2016 4.34703 0.00% 2096.070068 -0.92% 6/13/2016 4.34703 0.00% 2079.060059 -0.81% 6/14/2016 4.3089 -0.88% 2075.320068 -0.18% 6/15/2016 4.28984 -0.44% 2071.5 -0.18% 6/16/2016 4.32797 0.89% 2077.98999 0.31% 6/17/2016 4.3375 0.22% 2071.219971 -0.33% 6/20/2016 4.34703 0.22% 2083.25 0.58% 6/21/2016 4.41376 1.54% 2088.899902 0.27% 6/22/2016 4.38516 -0.65% 2085.449951 -0.17% 6/23/2016 4.3947 0.22% 2113.320068 1.34% 6/24/2016 4.2517 -3.25% 2037.410034 -3.59% 6/27/2016 4.2803 0.67% 2000.540039 -1.81% 6/28/2016 4.14684 -3.12% 2036.089966 1.78% 6/29/2016 4.2517 2.53% 2070.77002 1.70% 6/30/2016 4.3947 3.36% 2098.860107 1.36% 7/1/2016 4.3375 -1.30% 2102.949951 0.19% 7/5/2016 4.18497 -3.52% 2088.550049 -0.68% 7/6/2016 4.12777 -1.37% 2099.72998 0.54% 7/7/2016 4.13731 0.23% 2097.899902 -0.09% 7/8/2016 4.15637 0.46% 2129.899902 1.53% 7/11/2016 4.2231 1.61% 2137.159912 0.34% 7/12/2016 4.20404 -0.45% 2152.139893 0.70% 7/13/2016 4.15637 -1.13% 2152.429932 0.01% 7/14/2016 4.21357 1.38% 2163.75 0.53% 7/15/2016 4.20404 -0.23% 2161.73999 -0.09% 7/18/2016 4.21357 0.23% 2166.889893 0.24% 7/19/2016 4.2231 0.23% 2163.780029 -0.14% 7/20/2016 4.29937 1.81% 2173.02002 0.43% 7/21/2016 4.40423 2.44% 2165.169922 -0.36% 7/22/2016 4.35657 -1.08% 2175.030029 0.46% 7/25/2016 4.41376 1.31% 2168.47998 -0.30% 7/26/2016 4.46143 1.08% 2169.179932 0.03% 7/27/2016 4.47096 0.21% 2166.580078 -0.12% 7/28/2016 4.52816 1.28% 2170.060059 0.16% 7/29/2016 4.61396 1.89% 2173.600098 0.16% 8/1/2016 4.59489 -0.41% 2170.840088 -0.13% 8/2/2016 4.58536 -0.21% 2157.030029 -0.64% 8/3/2016 4.48049 -2.29% 2163.790039 0.31% 8/4/2016 4.43283 -1.06% 2164.25 0.02% 8/5/2016 4.49003 1.29% 2182.870117 0.86% 8/8/2016 4.59489 2.34% 2180.889893 -0.09% 8/9/2016 4.61396 0.42% 2181.73999 0.04% 8/10/2016 4.65209 0.83% 2175.48999 -0.29% 8/11/2016 4.78555 2.87% 2185.790039 0.47% 8/12/2016 4.91901 2.79% 2184.050049 -0.08% 8/15/2016 5.03341 2.33% 2190.149902 0.28% 8/16/2016 4.93808 -1.89% 2178.149902 -0.55% 8/17/2016 4.95714 0.39% 2182.219971 0.19% 8/18/2016 4.93808 -0.38% 2187.02002 0.22% 8/19/2016 4.89995 -0.77% 2183.870117 -0.14% 8/22/2016 4.93808 0.78% 2182.639893 -0.06% 8/23/2016 4.98574 0.97% 2186.899902 0.20% 8/24/2016 4.97621 -0.19% 2175.439941 -0.52% 8/25/2016 5.0906 2.30% 2172.469971 -0.14% 8/26/2016 5.05247 -0.75% 2169.040039 -0.16% 8/29/2016 5.08107 0.57% 2180.379883 0.52% 8/30/2016 4.99527 -1.69% 2176.120117 -0.20% 8/31/2016 5.12874 2.67% 2170.949951 -0.24% 9/1/2016 5.08107 -0.93% 2170.860107 0.00% 9/2/2016 5.06201 -0.38% 2179.97998 0.42% 9/6/2016 5.08107 0.38% 2186.47998 0.30% 9/7/2016 5.05247 -0.56% 2186.159912 -0.01% 9/8/2016 4.96668 -1.70% 2181.300049 -0.22% 9/9/2016 4.96668 0.00% 2127.810059 -2.45% 9/12/2016 4.81415 -3.07% 2159.040039 1.47% 9/13/2016 4.80462 -0.20% 2127.02002 -1.48% 9/14/2016 4.86181 1.19% 2125.77002 -0.06% 9/15/2016 4.88088 0.39% 2147.26001 1.01% 9/16/2016 4.95714 1.56% 2139.159912 -0.38% 9/19/2016 4.87135 -1.73% 2139.120117 0.00% 9/20/2016 4.87135 0.00% 2139.76001 0.03% 9/21/2016 4.90948 0.78% 2163.120117 1.09% 9/22/2016 4.94761 0.78% 2177.179932 0.65% 9/23/2016 4.94761 0.00% 2164.689941 -0.57% 9/26/2016 4.93808 -0.19% 2146.100098 -0.86% 9/27/2016 4.95714 0.39% 2159.929932 0.64% 9/28/2016 4.94761 -0.19% 2171.370117 0.53% 9/29/2016 4.98574 0.77% 2151.129883 -0.93% 9/30/2016 4.95714 -0.57% 2168.27002 0.80% 10/3/2016 5.06201 2.12% 2161.199951 -0.33% 10/4/2016 4.97621 -1.69% 2150.48999 -0.50% 10/5/2016 4.95714 -0.38% 2159.72998 0.43% Beta 0.07178 The yield rate on the debt of government is amounted to be 4.50% (Edwards 2013). The equity cost of the organization Harvey Norman has been calculated by using the method CAPM in the table below: Market Return Rate 7.84% Risk Free Rate of Return 4.50% Risk Premium 3.32% Beta 0.0717797 Expected Rate of Return 4.74% The weighted average cost of debt for the firm Harvey Norman has been calculated by using both the market and book value in the table below: Calculation for Cost of Debt:- Book Value Market Value Book Value Market Value Type of Debts Cost of Debts Cost of Debts Amount Weight Weighted Rate Weighted Rate Borrowings 5.93% 6.35% 561808 81.59% 4.84% 5.18% Other Loans 4.22% 5.47% 89928 13.06% 0.55% 0.71% Bank Overdraft 6.68% 7.17% 32620 4.74% 0.32% 0.34% Financial Lease 9.50% 5.19% 139 0.02% 0.002% 0.001% Other Financial Liabilities 5.54% 5.19% 4061 0.59% 0.033% 0.031% Total 688556 100% 5.74% 6.27% The weighted average cost of debt is considered as a different factor, especially, when the rate of interest is used according to the market and book value (Gitman and Zutter 2012). The rates of the book value of the firm have been used but this would not be able to prepare any true claim regarding the monetary outstanding. On the other hand, as per Asx.com.au (2016) the market value organizes the accurate financial claim. The market value that is used for calculating weighted average cost of capital is equivalent to 4.51 % (Hribar, Kravet and Wilson 2014). Moreover, based on the book value, it can be said that the weighted average cost of capital is 4.27%. The particular calculations are as follows: Calculation of Weighted Cost of Capital:- Book Value Market Value Book Value Market Value Particulars Amount Cost Cost Weight Tax Rate Weighted Rate Weighted Rate Equity 380328 4.74% 4.74% 36% 30% 4.27% 4.51% Debt 688556 5.74% 6.27% 64% 30% Total 1068884 4.27% 4.51% When the cost of capital is deliberated by using the market value, the value that is determined out is considered as more pertinent. The particular value is more authentic as the present circumstance is to depict the data from this rate (Johnson and Noguera 2012). This might be of great use for both the shareholders and the investors of the particular organization, who are eager to make investment within the organization. The organization that generally uses the pure play approach for identifying the estimated cost of capital might come up with different issues (Mintz 2016). The particular reason behind this is that the definite investment that is made by the firm would not be able to scrutinize. The organization uses the estimated value of the beta by using the particular firm that can be contrasted to the provided organization by utilizing the pure play approach. The company return is studied by using this specified approach that would not be able to scrutinize the investment return. The firms beta cannot be calculated in a straight method. The true value of this investment might not be obtained from the particular pure play approach. The cause is that the substitute values are utilized for identifying the return from the investments and the situation might also be dissimilar especially when it is included within the real line of business (Weil, Schipper and Francis 2013). Thus, the true worth of th e particular investment that is made along with the return that is developed might not be replicated by using the true worth. References Anandarajan, M., Anandarajan, A. and Srinivasan, C.A. eds., 2012.Business intelligence techniques: a perspective from accounting and finance. Springer Science Business Media. Asx.com.au. 2016.Home - Australian Securities Exchange - ASX. [online] Available at: https://www.asx.com.au/ [Accessed 25 Sep. 2016]. Au.finance.yahoo.com. 2016.HVN.AX Historical Prices | HARVEY FPO Stock - Yahoo!7 Finance. 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