Illustrate the concept using the example of your study company.

Fin434 m3a1 discussion – financing decisions

For example, an accounting firm that develops and manufactures software for computers may make the following assumptions.
1. Hypothesised interest rates for debt and equity financing. The company expects a rate of 4% for loans and 6% to equity investments.
2. Projection of revenue growth and expense growth: Over the next five years, revenues are expected to grow by 10% and expenses will increase by 8% respectively.
3. Assumptions regarding the sale or return of investment assets: The company will assume a 15% return.
4. Assumptions about the costs of materials, labor, and shipping.The company is expecting material costs to rise at 3 percent, labor will go up at 22% and shipping cost to increase at 11%.
5. Hypotheses about tax rates: The federal income tax rate for the company is 21%.
6. When evaluating possible investments and projects, the company assumes a capitalization rate (discount rate) of 9%.
7. Other overhead costs, such as insurance premiums and administrative expenses: The expected cost of administration overhead will be about 7%. Insurance premiums can be estimated to average 1%.
8. Accounting methods that use depreciation: For determining the depreciation expenses amounts on fixed assets, such as buildings or equipment owned by the company, straight-line depreciation is used.
9 The inflationary estimate applicable: A 2% average annual inflation is expected over the next five years in all areas, including wages and rents.
Ten Technology Changes that could affect your business model: The development team anticipates technological advancements to positively impact their software service with an increase of functionality every three years.

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