Hasbro’s financial performance has increased for the last three years. In 2013, the company’s revenues grew by 15% from 2012 and Franchise brands doubled in the United States, Canada and the international segments (Hasbro, Inc 120). Based on these returns, the company opted to expand its activities by entering into franchise contracts with major movie studios. This move by the company will see the company in business for the next seven years guaranteeing good returns annually. Therefore, a critical analysis of the financial implications of such contracts id significant before such a decision is made.
An analysis of the financial forecasts presented gives an insight into the financial requirements of the project. Suitable methods of project …show more content…
A rate of 8 percent is determined using the dividend growth rate model. This rate is adjusted to incorporate the risk factor present in the business. The risk adjusted discounting rate is therefore 11 percent.
Depreciation is calculated using the MACRS approach of General Depreciation System. The rates are as prescribed in Table A-1 (US Treasury 946). A depreciation tax shield is calculated based on the depreciation values and this is added back as a benefit.
The NPV approach gives a Net Present Value of $ 20,893,000. Therefore, the project should be implemented as it promises a positive NPV. Financially, the project is viable. If the funds obtained were non-interest bearing, the project would be financially viable under this approach.
Under the Internal Rate of Return method, the PV of all future incomes are compared against the Initial investment and the discounting rate which equates the two represents the IRR. It is that discounting rate which yield a zero NPV. From the financial data obtained, the rate is determined as 11.48%. This is above the investors’ required rate of 8% and the risk adjusted rate of 11%. The project therefore will generate a higher return and should therefore be
An analysis of the financial forecasts presented gives an insight into the financial requirements of the project. Suitable methods of project …show more content…
A rate of 8 percent is determined using the dividend growth rate model. This rate is adjusted to incorporate the risk factor present in the business. The risk adjusted discounting rate is therefore 11 percent.
Depreciation is calculated using the MACRS approach of General Depreciation System. The rates are as prescribed in Table A-1 (US Treasury 946). A depreciation tax shield is calculated based on the depreciation values and this is added back as a benefit.
The NPV approach gives a Net Present Value of $ 20,893,000. Therefore, the project should be implemented as it promises a positive NPV. Financially, the project is viable. If the funds obtained were non-interest bearing, the project would be financially viable under this approach.
Under the Internal Rate of Return method, the PV of all future incomes are compared against the Initial investment and the discounting rate which equates the two represents the IRR. It is that discounting rate which yield a zero NPV. From the financial data obtained, the rate is determined as 11.48%. This is above the investors’ required rate of 8% and the risk adjusted rate of 11%. The project therefore will generate a higher return and should therefore be