FIN-C2
Evaluating the projects carefully, it can be concluded that Ice Dreams Company is the most risky project to the funders. As a result, the funders should ensure that they charge a high discount rate. There are several reasons that lead to this conclusion. In the first place, the amount of loans that the company intends to borrow is huge. This means that it is very difficult for the company to pay these loans together with the interest required. The total amount of loans sum up to 52 010 United States dollars. From the amount of funds borrowed, over 40,000 dollars are set aside for expenditure purposes. The amount that goes to investments and purchase of assets is very low. This shows that the business is very risky. In the first place, the assets that are to be purchased are very small and the funders cannot rely on these assets in case the company is unable to pay its debts. The investment funds are also small hence, it can be concluded that the company will not be able to generate enough cash to repay the debts.
Looking at RJ Wagner & Associates Realty, Inc, it is less risky. The total loan that is needed form a small proportion of the total business funds. The investment is the largest from the graph and this shows that income generation will be high and the business will be able to repay its loan. The expenses are small compared to investments and assets showing that the funds owned by the company will be devoted in generation of profit. The fact that the value of the assets owned by the company are more than the loans means that the company has enough security in case it is not able to repay its loan.
It can be concluded that RJ Wagner & Associates Realty, Inc is less risky and should be charged a low discount rate by the funders. Furthermore, there are two shareholders of the business hence proper management of the company is expected. Evaluating ice Dreams Company, it looks the most risky and should therefore be charged the highest higher discount rate.
