Electricity Supply Industry & Natural Monopoly Essay

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Running Header: Economics Question 1 Economics Question Student Name Professor Name Course title Date of submission Economics Question 2 International Investment Decisions The trade of one currency for another one is known as foreign exchange (forex or FX). One could, for instance, exchange the US dollar for the euro. The forex market, commonly known as the forex market, is where forex transactions may be made. With billions of dollars changing hands every day, the FX market is the world’s largest and most limited asset. There is no one point of contact. Rather, the forex market is an electronic network of banks, brokers, organizations, and individual traders, with the majority of transactions taking place through brokers or banks (Danila N, 2018). The market decides the value of most currencies, commonly known as the exchange rate. Forex market may be as easy as swapping currency for currencies in local banks. It may also include foreign exchange trade currencies. For instance, a trader bets on a central bank to make monetary policy easy or tighter and to boost one currency against the other.

The disparity between the current value of cash inflows and withdrawals over a period is known as net present value (NPV). NPV is used to assess the profitability of a project or venture in capital budgeting and investment planning. NPV is the outcome of computations performed to calculate the present value of a future payment stream. It represents the time worth of money and may be used to evaluate comparable alternative investments. Any venture or investment with a negative NPV must be discouraged since it is based on a discount rate that can be calculated from the cost of capital necessary to undertake the venture. One major flaw with NPV analysis is that it relies on unreliable assumptions about future occurrences (Nwogugu. 2017). An NPV larger than zero is considered “excellent” in principle. After all, the discount rate used in the NPV calculation already accounts for the investor’s cost of capital, relative value, and Economics Question 3 risk tolerance. Also included are the project’s future cash flows as well as the time value of money.

A positive net present value (NPV) implies that the expected returns from a project or investment in current dollars surpass the expected expenditures, likewise in present dollars. A venture with a positive net present value (NPV) is considered lucrative. A net loss will arise from an investment with a negative NPV. The Net Present Value Rule, which states that only projects with a positive NPV should be evaluated, is based on this notion (Feuz, 2017). If the Net Present Value (NPV) of a firm or firm is positive, this means that the capped present value of all future earnings related to the assignment or speculation will be positive and therefore should be accepted. A positive NPV value means that the normal income (in current US dollars) for the job or interest exceeds the expected cost (also in current US dollars).

Speculating with a positive NPV is worthwhile and this is normal. Speculation with a negative NPV will result in a total deficit (Namanda, M. 2017). Net Present Value (NPV) can be used to assess the attractiveness of a business and whether it will improve the partnership. One usage fee but different usage amounts. This concept determines the NPV principle, which says that individual companies with positive NPVs should be assessed. Net present value is calculated by using the following formula: NPV=t=1∑n (1+i)tRt Where : Rt=Net cash inflow-outflows during a single period ti = Discount rate or return that could be earned in alternative investments t= Number of timer periods Economics Question 4 Calculation of net present value for Germany cash flow using minimum required rates of return € in millions and $ in millions years Cash flows in € Cash flows in $ Present Present value factors value of Cash 10% flow 0 (€ 0.00) ($78.00) 1.0000 $78.00 1 € 10 $12.83 0.9091 $11.71 2 € 15 $19.83 0.8264 $15.81 3 € 15 $18.94 0.7513 $14.24 4 € 20 $25.00 0.6830 $17.10 5 € 20 $24.80 0.6209 $15.40 6 € 20 $24.56 0.5645 $13.36 Net $10.11 present value The net present value in dollars is $10.11 Economics Question 5 Calculations of net present value for Switzerland cash flow using minimum required rate of returns € in millions and $ in millions years Cash flows in € Cash flows in $ Present Present value factors value of Cash 10% flow 0 Fr. 120 ($80.00 1.0000 ($80.00) 1 Fr.€ 20 $13.46 0.9091 $12.24 2 Fr.39 $20.39 0.8264 $10.85 3 Fr.30 $20.58 0.7513 $15.46 4 Fr. 35 $24.24 0.6830 $16.56 5 Fr. 35 $24.24 0.6209 $15.20 6 Fr. 35 $24.17 0.5645 $13.95 Net $10.25 present value Economics Question The net present value in dollars is $10.25. The NPV of the German project is $10.11 million. The NPV of the Swiss project is $10.25 million. Accept the project if NPV>0 Reject the project if NPV

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