Read through the below post and provide any on of the following: APA format 300 Words.

  

 Read through the below post and provide any on of the following: APA format 300 Words.

.Ask a probing question, substantiated with additional background information, evidence or research.  

· Share an insight from having read your colleagues’ postings, synthesizing the information to provide new perspectives.  

· Offer and support an alternative perspective using readings from the classroom or from your own research.  

· Validate an idea with your own experience and additional research. 

· Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.

Post

Beta can be described as a measure of relative volatility. It is used to measure the systematic risk of a portfolio or security in comparison to the whole market. It is a multiplicative factor. When investing, beta is used as a fundamental tradeoff between maximizing returns a minimizing risk. A good example is when a company has a beta of 2; it means its volatility is twice the overall market. When the beta is negative, it indicates an inverse relation to the overall market. This negative beta is highly unlikely. If we expect investment returns of 5%, then a return of 10% of the company is expected. On the other hand, a decline in the market of -5% would result in -10% returns (loss).

The following are the current Beta coefficient of four American companies for the year 2018 based on the S&P 500 index. Exxon Mobil (0.85), Starbucks (0.66), JPMorgan Chase (1.110) and Goldman Sachs (1.24). Looking at the four companies, we can observe that the beta of Goldman Sachs is the highest meaning that its stock is more volatile than the other three while Starbucks is the least volatile based on its low Beta. JPMorgan is the second most volatile followed by Exxon Mobil.

Evaluating projects using internal rate of return (IRR) and net present value (NPV) measurements give a similar finding. However, each of these methods has its disadvantages and advantages. When we look at both these measures, NPV is expressed in the currency of return while IRR expresses it in percentage return a company expects from a project. NPV is an absolute measure while IRR is a relative measure. When it comes to cash flow, NPV is used to evaluate investments where cash flow changes while IRR can’t be used when cash flow is changing in a project. Also, NPV takes into account shareholders wealth while IRR doesn't.

NPV is a better measure than IRR due to NPV accounting to changes in cash flow, a shorter period and equal risk. It is also better because it can discount every cash flow separately. This is unlike IRR which is ineffective in calculations which involve a mix of both negative and positive cash flow. For example, a project that has to be updated every few years for it to remain up-to-date. The cash flows are negative $10,000 in the first year because of its preliminary outlay. In the second year it returns $30,000 and in the third year costs $15,000 when the project is updated. Consequently, NPV accounts for each option distinctly making it a better method. It is also better when the discount rate is not known.

The primary goal of any company is to maximize the wealth of the owner (shareholders) equity through dividends payment of sale of common stock. Therefore I would say this is ethical since it is only right that the owners of a firm should get their money back to help their families and build the society.

When it comes to ethics, companies which observe ethical practices are deemed low risk by investors. Therefore, they are inclined to invest in companies that are ethical and profitable due to lower cost brought by malpractice and breach of contract lawsuits.

References

Capital Budgeting (Principles & Techniques). (n.d.). Retrieved from https://www.scribd.com/doc/37253036/Capital-Budgeting-Principles-Techniques

Capital Budgeting Decision Methods [Video file]. (2014, April 9). Retrieved from https://www.youtube.com/watch?v=hfZ6lznPf2U

The Cash Budget [Video file]. (2014, December 18). Retrieved from https://www.youtube.com/watch?v=HT0c22HF5hA