Report On Perspective From Accounting And Finance

Payback Period Calculation

Discuss about the Report for Perspective from Accounting and Finance.

Calculation of Payback Period
Particulars	Year 0	Year 1 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Year 2	Year 3	Year 4	Year 5
Free Cash Flow	-48408000	6378571	20527571	15833571	15524571	19230571
Cumulative Cash Flow	-48408000	-42029429	-21501857	-5668286	9856286	29086857
Payback Period	4.365117049

Based on the above calculation, it can be said that the PBP (Payback Period) for the latest project is 4.36 years.

Particulars	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Discounted Cash Flow	-48408000	5695153.06	16364454	11270023	9866145.8	10911942.7
Total Discounted Cash Flow		54107719.2
Initial Investment		48408000
Net Present Value	5699719.202
Profitability Index	1.118

From the particular above calculation, it can be said that the PI (profitability index) of the specified project is 1.118.

Particulars	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Discounted Cash Flow	-48408000	5695153.06	16364454	11270023	9866145.8	10911942.7
IRR	3.727%

The IRR (Internal Rate of Return) for the specified project is 3.727%.

Calculation of Net Present Value:-
Particulars	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Sales Revenue		31040000	51410000	42195000	37830000	26190000
Variable Cost		-13120000	-21730000	-17835000	-15990000	-11070000
Fixed Cost		-5100000	-5100000	-5100000	-5100000	-5100000
Purchase of Manufacturing Equipment	-34500000
Development Cost	-7500000
Market Research	-200000
Working Capital	-6208000
Depreciation of Equipment		-4928571	-4928571	-4928571	-4928571	-4928571
Net Income before Tax		7891429	19651429	14331429	11811429	5091429
Less: Tax @ 30%		-2367429	-5895429	-4299429	-3543429	-1527429
Net Operating Income after Tax		5524000	13756000	10032000	8268000	3564000
Add: Depreciation on Equipment		4928571	4928571	4928571	4928571	4928571
Less: Change in Working Capital		-4074000	1843000	873000	2328000	5238000
Add: Estimated sale of Equipment						5500000
Free Cash Flow	-48408000	6378571	20527571	15833571	15524571	19230571
Required Rate of Return		12%	12%	12%	12%	12%
Discount Factor		0.89285714	0.7971939	0.7117802	0.6355181	0.56742686
Discounted Cash Flow	-48408000	5695153.06	16364454	11270023	9866145.8	10911942.7
Total Discounted Cash Flow		54107719.2

Initial Investment		48408000
Net Present Value	5699719.202

It has been found that if the SP (selling price) is considered at low rates, then the NPV (Net Present Value) of the particular project will also decline consequently (Balakrishnan, Watts and Zuo 2013). Moreover, it has been noted that for elevated SP (selling prices), the NPV will also be elevated. The analysis of the same has been shown below:

Particulars	Actual	Option 1	Option 2	Option 3	Option 4
Unit Price ($)	485	460.75	448.62	509.25	521.38
NPV	5699719	1047685	-1278332	10351753	12677771

According to Brealey et al. (2012), if the selling price (SP) is equivalent and the volume of the sales becomes elevated than the estimated quantity of volume, the firm can earn higher amount of net present value from the specified project. On the other hand, if the sales volume is relatively lower, then, the net present value will get decreased consequently. The specified calculations are provided in the table below:

Particulars	Actual	Option 1	Option 2	Option 3	Option 4
Sales Volume	389000	369550	359825	408450	418175
NPV	5699719	3083819	1775869	8315619	9623569

Potentiality of the New Project:

Opined to Bebbington, Unerman and O’Dwyer (2014), when the net present value (NPV) of the project is considered as positive, a firm should take the project under consideration. Here, the organization Emu electronics should manufacture the smart phones as this will result into positive earnings. The reason behind this is that the calculated net present value is positive. Moreover, the payback period (PBP) of the particular project is also considered as attractive as the duration of the particular project for recovering the initial amount is relatively lesser.

Penalty for Loss on Other Models:

The loss takes place due to the decreased quantity of sale of the smart phone models that have been formerly launched is enclosed by the revenue that is generated by selling the new model of smart phones (Christensen et al. 2015). This new model of smart phone has been introduced into the market by the organization Emu Electronics. Thus, it can be said that if any loss takes place, then it will be enclosed by the due in order to sell the new model of the smart phones. In this circumstance, only the new smart phone model would be introduced into the market by the particular organization.

Profitability Index Calculation

Particulars	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5
Sales Volume (Unit)		64000	106000	87000	78000	54000
Unit Price ($)		485	485	485	485	485
Sales Revenue		31040000	51410000	42195000	37830000	26190000
Variable Cost P.u.		205	205	205	205	205
Total Variable Cost		13120000	21730000	17835000	15990000	11070000
Total Fixed Cost		5100000	5100000	5100000	5100000	5100000
Net Working Capital	6208000	10282000	8439000	7566000	5238000
Change in Net Working Capital		4074000	-1843000	-873000	-2328000	-5238000

According to the Annual Report of the company “Harvey Norman” for the year 2015, the value of the accounts book of the equity of the particular organization is $ 2556.86 million as on June 30 of the year 2015.

Moreover, for the year 2015, the annual report of the particular organization exhibits that as on June 30 of the year, 2016, the specified firm has the total liability of an amount of $ 1511.912 million. However, it has been found that out of this total amount of $ 1511.912 million, $ 688.556 million are considered as an “interest bearing amount” in nature (www.harveynormanholdings.com.au, 2016).

The price of Harvey Norman stock on 5^th of October in the year 2016 is AU $ 4.957.

The market capitalization or the market value of equity of the firm Harvey Norman as on 5^th of Octobetr in the year 2016 is AU$5.80 billion (Damodaran 2016)

Moreover, on 5^{th of} October in the year 2016, the firm Harvey Norman has about 1113.24376 million outstanding stocks (Au.finance.yahoo.com, 2016).

The most current dividend that is paid by the firm “Harvey Norman” once in a year was an amount of $ 0.185 as on 7^thof April in the year 2016.

According to the “dividend discount model” one can use the data for calculating the present market value of the stock price of the organization “Harvey Norman” with the assistance of the “Growth Rate”. It is designed under the “CAGR Model” and the needed return rate by using the method “CAPM” (Deegan 2012).

The Beta of the company “Harvey Norman” has been calculated as follows:

	Harvey Norman	S&P 500 Index
Date	Adj Closing Price	Return	Adj Closing Price	Return
10/5/2015	3.42291		1987.050049
10/6/2015	3.4317	0.26%	1979.920044	-0.36%
10/7/2015	3.4757	1.28%	1995.829956	0.80%
10/8/2015	3.4845	0.25%	2013.430054	0.88%
10/9/2015	3.5021	0.51%	2014.890015	0.07%
10/12/2015	3.4581	-1.26%	2017.459961	0.13%
10/13/2015	3.36131	-2.80%	2003.689941	-0.68%
10/14/2015	3.41411	1.57%	1994.23999	-0.47%
10/15/2015	3.39651	-0.52%	2023.859985	1.49%
10/16/2015	3.39651	0.00%	2033.109985	0.46%
10/19/2015	3.33491	-1.81%	2033.660034	0.03%
10/20/2015	3.30852	-0.79%	2030.77002	-0.14%
10/21/2015	3.29092	-0.53%	2018.939941	-0.58%
10/22/2015	3.29972	0.27%	2052.51001	1.66%
10/23/2015	3.35251	1.60%	2075.149902	1.10%
10/26/2015	3.39651	1.31%	2071.179932	-0.19%
10/27/2015	3.5021	3.11%	2065.889893	-0.26%
10/28/2015	3.64289	4.02%	2090.350098	1.18%
10/29/2015	3.66771	0.68%	2089.409912	-0.04%
10/30/2015	3.64027	-0.75%	2079.360107	-0.48%
11/2/2015	3.62198	-0.50%	2104.050049	1.19%
11/3/2015	3.61283	-0.25%	2109.790039	0.27%
11/4/2015	3.64027	0.76%	2102.310059	-0.35%
11/5/2015	3.55796	-2.26%	2099.929932	-0.11%
11/6/2015	3.65857	2.83%	2099.199951	-0.03%
11/9/2015	3.57625	-2.25%	2078.580078	-0.98%
11/10/2015	3.50308	-2.05%	2081.719971	0.15%
11/11/2015	3.47564	-0.78%	2075	-0.32%
11/12/2015	3.58539	3.16%	2045.969971	-1.40%
11/13/2015	3.51222	-2.04%	2023.040039	-1.12%
11/16/2015	3.41161	-2.86%	2053.189941	1.49%
11/17/2015	3.48478	2.14%	2050.439941	-0.13%
11/18/2015	3.51222	0.79%	2083.580078	1.62%
11/19/2015	3.63113	3.39%	2081.23999	-0.11%
11/20/2015	3.7043	2.02%	2089.169922	0.38%
11/23/2015	3.7043	0.00%	2086.590088	-0.12%
11/24/2015	3.7043	0.00%	2089.139893	0.12%
11/25/2015	3.7043	0.00%	2088.870117	-0.01%
11/27/2015	3.71344	0.25%	2090.110107	0.06%
11/30/2015	3.73174	0.49%	2080.409912	-0.46%
12/1/2015	3.79576	1.72%	2102.629883	1.07%
12/2/2015	3.71344	-2.17%	2079.51001	-1.10%
12/3/2015	3.67686	-0.99%	2049.620117	-1.44%
12/4/2015	3.64027	-1.00%	2091.689941	2.05%
12/7/2015	3.62198	-0.50%	2077.070068	-0.70%
12/8/2015	3.64942	0.76%	2063.590088	-0.65%
12/9/2015	3.65857	0.25%	2047.619995	-0.77%
12/10/2015	3.61283	-1.25%	2052.22998	0.23%
12/11/2015	3.60369	-0.25%	2012.369995	-1.94%
12/14/2015	3.50308	-2.79%	2021.939941	0.48%
12/15/2015	3.45735	-1.31%	2043.410034	1.06%
12/16/2015	3.51222	1.59%	2073.070068	1.45%
12/17/2015	3.55796	1.30%	2041.890015	-1.50%
12/18/2015	3.63113	2.06%	2005.550049	-1.78%
12/21/2015	3.65857	0.76%	2021.150024	0.78%
12/22/2015	3.74088	2.25%	2038.969971	0.88%
12/23/2015	3.73174	-0.24%	2064.290039	1.24%
12/24/2015	3.68601	-1.23%	2060.98999	-0.16%
12/28/2015	3.68601	0.00%	2056.5	-0.22%
12/29/2015	3.86893	4.96%	2078.360107	1.06%
12/30/2015	3.91467	1.18%	2063.360107	-0.72%
12/31/2015	3.8232	-2.34%	2043.939941	-0.94%
1/4/2016	3.96954	3.83%	2012.660034	-1.53%
1/5/2016	3.94211	-0.69%	2016.709961	0.20%
1/6/2016	3.86893	-1.86%	1990.26001	-1.31%
1/7/2016	3.81406	-1.42%	1943.089966	-2.37%
1/8/2016	3.80491	-0.24%	1922.030029	-1.08%
1/11/2016	3.85979	1.44%	1923.670044	0.09%
1/12/2016	3.81406	-1.18%	1938.680054	0.78%
1/13/2016	3.99698	4.80%	1890.280029	-2.50%
1/14/2016	3.8232	-4.35%	1921.839966	1.67%
1/15/2016	3.86893	1.20%	1880.329956	-2.16%
1/19/2016	3.92381	1.42%	1881.329956	0.05%
1/20/2016	3.92381	0.00%	1859.329956	-1.17%
1/21/2016	3.96954	1.17%	1868.98999	0.52%
1/22/2016	3.99698	0.69%	1906.900024	2.03%
1/25/2016	4.03357	0.92%	1877.079956	-1.56%
1/26/2016	4.03357	0.00%	1903.630005	1.41%
1/27/2016	3.98784	-1.13%	1882.949951	-1.09%
1/28/2016	3.97869	-0.23%	1893.359985	0.55%
1/29/2016	4.06101	2.07%	1940.23999	2.48%
2/1/2016	4.11589	1.35%	1939.380005	-0.04%
2/2/2016	4.00613	-2.67%	1903.030029	-1.87%
2/3/2016	3.85979	-3.65%	1912.530029	0.50%
2/4/2016	3.93296	1.90%	1915.449951	0.15%
2/5/2016	3.92381	-0.23%	1880.050049	-1.85%
2/8/2016	3.9604	0.93%	1853.439941	-1.42%
2/9/2016	3.99698	0.92%	1852.209961	-0.07%
2/10/2016	3.99698	0.00%	1851.859985	-0.02%
2/11/2016	4.02442	0.69%	1829.079956	-1.23%
2/12/2016	3.99698	-0.68%	1864.780029	1.95%
2/16/2016	4.05186	1.37%	1895.579956	1.65%
2/17/2016	4.10674	1.35%	1926.819946	1.65%
2/18/2016	4.28052	4.23%	1917.829956	-0.47%
2/19/2016	4.24394	-0.85%	1917.780029	0.00%
2/22/2016	4.28052	0.86%	1945.5	1.45%
2/23/2016	4.2165	-1.50%	1921.27002	-1.25%
2/24/2016	4.17077	-1.08%	1929.800049	0.44%
2/25/2016	4.2165	1.10%	1951.699951	1.13%
2/26/2016	4.14333	-1.74%	1948.050049	-0.19%
2/29/2016	4.37199	5.52%	1932.22998	-0.81%
3/1/2016	4.4543	1.88%	1978.349976	2.39%
3/2/2016	4.40857	-1.03%	1986.449951	0.41%
3/3/2016	4.43601	0.62%	1993.400024	0.35%
3/4/2016	4.39028	-1.03%	1999.98999	0.33%
3/7/2016	4.31711	-1.67%	2001.76001	0.09%
3/8/2016	4.31711	0.00%	1979.26001	-1.12%
3/9/2016	4.34455	0.64%	1989.26001	0.51%
3/10/2016	4.34455	0.00%	1989.569946	0.02%
3/11/2016	4.34455	0.00%	2022.189941	1.64%
3/14/2016	4.32625	-0.42%	2019.640015	-0.13%
3/15/2016	4.27138	-1.27%	2015.930054	-0.18%
3/16/2016	4.23479	-0.86%	2027.219971	0.56%
3/17/2016	4.28967	1.30%	2040.589966	0.66%
3/18/2016	4.27138	-0.43%	2049.580078	0.44%
3/21/2016	4.24394	-0.64%	2051.600098	0.10%
3/22/2016	4.28967	1.08%	2049.800049	-0.09%
3/23/2016	4.28967	0.00%	2036.709961	-0.64%
3/24/2016	4.28967	0.00%	2035.939941	-0.04%
3/28/2016	4.28967	0.00%	2037.050049	0.05%
3/29/2016	4.24394	-1.07%	2055.01001	0.88%
3/30/2016	4.30796	1.51%	2063.949951	0.44%
3/31/2016	4.29882	-0.21%	2059.73999	-0.20%
4/1/2016	4.16162	-3.19%	2072.780029	0.63%
4/4/2016	4.2165	1.32%	2066.129883	-0.32%
4/5/2016	4.13418	-1.95%	2045.170044	-1.01%
4/6/2016	4.18906	1.33%	2066.659912	1.05%
4/7/2016	4.18497	-0.10%	2041.910034	-1.20%
4/8/2016	4.15637	-0.68%	2047.599976	0.28%
4/11/2016	4.10871	-1.15%	2041.98999	-0.27%
4/12/2016	4.16591	1.39%	2061.719971	0.97%
4/13/2016	4.12777	-0.92%	2082.419922	1.00%
4/14/2016	4.15637	0.69%	2082.780029	0.02%
4/15/2016	4.24217	2.06%	2080.72998	-0.10%
4/18/2016	4.20404	-0.90%	2094.340088	0.65%
4/19/2016	4.14684	-1.36%	2100.800049	0.31%
4/20/2016	4.11824	-0.69%	2102.399902	0.08%
4/21/2016	4.08011	-0.93%	2091.47998	-0.52%
4/22/2016	4.08011	0.00%	2091.580078	0.00%
4/25/2016	4.08011	0.00%	2087.790039	-0.18%
4/26/2016	4.09918	0.47%	2091.699951	0.19%
4/27/2016	4.15637	1.40%	2095.149902	0.16%
4/28/2016	4.2517	2.29%	2075.810059	-0.92%
4/29/2016	4.27077	0.45%	2065.300049	-0.51%
5/2/2016	4.28984	0.45%	2081.429932	0.78%
5/3/2016	4.44236	3.56%	2063.370117	-0.87%
5/4/2016	4.50909	1.50%	2051.120117	-0.59%
5/5/2016	4.48049	-0.63%	2050.629883	-0.02%
5/6/2016	4.51863	0.85%	2057.139893	0.32%
5/9/2016	4.51863	0.00%	2058.689941	0.08%
5/10/2016	4.48049	-0.84%	2084.389893	1.25%
5/11/2016	4.46143	-0.43%	2064.459961	-0.96%
5/12/2016	4.44236	-0.43%	2064.110107	-0.02%
5/13/2016	4.44236	0.00%	2046.609985	-0.85%
5/16/2016	4.49003	1.07%	2066.659912	0.98%
5/17/2016	4.47096	-0.42%	2047.209961	-0.94%
5/18/2016	4.3375	-2.99%	2047.630005	0.02%
5/19/2016	4.3661	0.66%	2040.040039	-0.37%
5/20/2016	4.44236	1.75%	2052.320068	0.60%
5/23/2016	4.3375	-2.36%	2048.040039	-0.21%
5/24/2016	4.32797	-0.22%	2076.060059	1.37%
5/25/2016	4.38516	1.32%	2090.540039	0.70%
5/26/2016	4.3375	-1.09%	2090.100098	-0.02%
5/27/2016	4.3089	-0.66%	2099.060059	0.43%
5/31/2016	4.34703	0.88%	2096.949951	-0.10%
6/1/2016	4.3089	-0.88%	2099.330078	0.11%
6/2/2016	4.21357	-2.21%	2105.26001	0.28%
6/3/2016	4.21357	0.00%	2099.129883	-0.29%
6/6/2016	4.20404	-0.23%	2109.409912	0.49%
6/7/2016	4.23264	0.68%	2112.129883	0.13%
6/8/2016	4.2803	1.13%	2119.120117	0.33%
6/9/2016	4.34703	1.56%	2115.47998	-0.17%
6/10/2016	4.34703	0.00%	2096.070068	-0.92%
6/13/2016	4.34703	0.00%	2079.060059	-0.81%
6/14/2016	4.3089	-0.88%	2075.320068	-0.18%
6/15/2016	4.28984	-0.44%	2071.5	-0.18%
6/16/2016	4.32797	0.89%	2077.98999	0.31%
6/17/2016	4.3375	0.22%	2071.219971	-0.33%
6/20/2016	4.34703	0.22%	2083.25	0.58%
6/21/2016	4.41376	1.54%	2088.899902	0.27%
6/22/2016	4.38516	-0.65%	2085.449951	-0.17%
6/23/2016	4.3947	0.22%	2113.320068	1.34%
6/24/2016	4.2517	-3.25%	2037.410034	-3.59%
6/27/2016	4.2803	0.67%	2000.540039	-1.81%
6/28/2016	4.14684	-3.12%	2036.089966	1.78%
6/29/2016	4.2517	2.53%	2070.77002	1.70%
6/30/2016	4.3947	3.36%	2098.860107	1.36%
7/1/2016	4.3375	-1.30%	2102.949951	0.19%
7/5/2016	4.18497	-3.52%	2088.550049	-0.68%
7/6/2016	4.12777	-1.37%	2099.72998	0.54%
7/7/2016	4.13731	0.23%	2097.899902	-0.09%
7/8/2016	4.15637	0.46%	2129.899902	1.53%
7/11/2016	4.2231	1.61%	2137.159912	0.34%
7/12/2016	4.20404	-0.45%	2152.139893	0.70%
7/13/2016	4.15637	-1.13%	2152.429932	0.01%
7/14/2016	4.21357	1.38%	2163.75	0.53%
7/15/2016	4.20404	-0.23%	2161.73999	-0.09%
7/18/2016	4.21357	0.23%	2166.889893	0.24%
7/19/2016	4.2231	0.23%	2163.780029	-0.14%
7/20/2016	4.29937	1.81%	2173.02002	0.43%
7/21/2016	4.40423	2.44%	2165.169922	-0.36%
7/22/2016	4.35657	-1.08%	2175.030029	0.46%
7/25/2016	4.41376	1.31%	2168.47998	-0.30%
7/26/2016	4.46143	1.08%	2169.179932	0.03%
7/27/2016	4.47096	0.21%	2166.580078	-0.12%
7/28/2016	4.52816	1.28%	2170.060059	0.16%
7/29/2016	4.61396	1.89%	2173.600098	0.16%
8/1/2016	4.59489	-0.41%	2170.840088	-0.13%
8/2/2016	4.58536	-0.21%	2157.030029	-0.64%
8/3/2016	4.48049	-2.29%	2163.790039	0.31%
8/4/2016	4.43283	-1.06%	2164.25	0.02%
8/5/2016	4.49003	1.29%	2182.870117	0.86%
8/8/2016	4.59489	2.34%	2180.889893	-0.09%
8/9/2016	4.61396	0.42%	2181.73999	0.04%
8/10/2016	4.65209	0.83%	2175.48999	-0.29%
8/11/2016	4.78555	2.87%	2185.790039	0.47%
8/12/2016	4.91901	2.79%	2184.050049	-0.08%
8/15/2016	5.03341	2.33%	2190.149902	0.28%
8/16/2016	4.93808	-1.89%	2178.149902	-0.55%
8/17/2016	4.95714	0.39%	2182.219971	0.19%
8/18/2016	4.93808	-0.38%	2187.02002	0.22%
8/19/2016	4.89995	-0.77%	2183.870117	-0.14%
8/22/2016	4.93808	0.78%	2182.639893	-0.06%
8/23/2016	4.98574	0.97%	2186.899902	0.20%
8/24/2016	4.97621	-0.19%	2175.439941	-0.52%
8/25/2016	5.0906	2.30%	2172.469971	-0.14%
8/26/2016	5.05247	-0.75%	2169.040039	-0.16%
8/29/2016	5.08107	0.57%	2180.379883	0.52%
8/30/2016	4.99527	-1.69%	2176.120117	-0.20%
8/31/2016	5.12874	2.67%	2170.949951	-0.24%
9/1/2016	5.08107	-0.93%	2170.860107	0.00%
9/2/2016	5.06201	-0.38%	2179.97998	0.42%
9/6/2016	5.08107	0.38%	2186.47998	0.30%
9/7/2016	5.05247	-0.56%	2186.159912	-0.01%
9/8/2016	4.96668	-1.70%	2181.300049	-0.22%
9/9/2016	4.96668	0.00%	2127.810059	-2.45%
9/12/2016	4.81415	-3.07%	2159.040039	1.47%
9/13/2016	4.80462	-0.20%	2127.02002	-1.48%
9/14/2016	4.86181	1.19%	2125.77002	-0.06%
9/15/2016	4.88088	0.39%	2147.26001	1.01%
9/16/2016	4.95714	1.56%	2139.159912	-0.38%
9/19/2016	4.87135	-1.73%	2139.120117	0.00%
9/20/2016	4.87135	0.00%	2139.76001	0.03%
9/21/2016	4.90948	0.78%	2163.120117	1.09%
9/22/2016	4.94761	0.78%	2177.179932	0.65%
9/23/2016	4.94761	0.00%	2164.689941	-0.57%
9/26/2016	4.93808	-0.19%	2146.100098	-0.86%
9/27/2016	4.95714	0.39%	2159.929932	0.64%
9/28/2016	4.94761	-0.19%	2171.370117	0.53%
9/29/2016	4.98574	0.77%	2151.129883	-0.93%
9/30/2016	4.95714	-0.57%	2168.27002	0.80%
10/3/2016	5.06201	2.12%	2161.199951	-0.33%
10/4/2016	4.97621	-1.69%	2150.48999	-0.50%
10/5/2016	4.95714	-0.38%	2159.72998	0.43%
Beta		0.07178

The yield rate on the debt of government is amounted to be 4.50% (Edwards 2013).

The equity cost of the organization Harvey Norman has been calculated by using the method CAPM in the table below:

Market Return Rate		7.84%
Risk Free Rate of Return		4.50%
Risk Premium		3.32%
Beta		0.0717797
Expected Rate of Return		4.74%

The “weighted average cost of debt” for the firm Harvey Norman has been calculated by using both the market and book value in the table below:

Calculation for Cost of Debt:-
	Book Value	Market Value			Book Value	Market Value
Type of Debts	Cost of Debts	Cost of Debts	Amount	Weight	Weighted Rate	Weighted Rate
Borrowings	5.93%	6.35%	561808	81.59%	4.84%	5.18%
Other Loans	4.22%	5.47%	89928	13.06%	0.55%	0.71%
Bank Overdraft	6.68%	7.17%	32620	4.74%	0.32%	0.34%
Financial Lease	9.50%	5.19%	139	0.02%	0.002%	0.001%
Other Financial Liabilities	5.54%	5.19%	4061	0.59%	0.033%	0.031%
Total			688556	100%	5.74%	6.27%

The weighted average cost of debt is considered as a different factor, especially, when the rate of interest is used according to the market and book value (Gitman and Zutter 2012). The rates of the book value of the firm have been used but this would not be able to prepare any true claim regarding the monetary outstanding. On the other hand, as per Asx.com.au (2016) the market value organizes the accurate financial claim.

IRR Calculation

The market value that is used for calculating ‘weighted average cost of capital’ is equivalent to 4.51 % (Hribar, Kravet and Wilson 2014). Moreover, based on the book value, it can be said that the “weighted average cost of capital” is 4.27%. The particular calculations are as follows:

Calculation of Weighted Cost of Capital:-
		Book Value	Market Value			Book Value	Market Value
Particulars	Amount	Cost	Cost	Weight	Tax Rate	Weighted Rate	Weighted Rate
Equity	380328	4.74%	4.74%	36%	30%	4.27%	4.51%
Debt	688556	5.74%	6.27%	64%	30%
Total	1068884					4.27%	4.51%

When the “cost of capital” is deliberated by using the market value, the value that is determined out is considered as more pertinent. The particular value is more authentic as the present circumstance is to depict the data from this rate (Johnson and Noguera 2012). This might be of great use for both the shareholders and the investors of the particular organization, who are eager to make investment within the organization.

The organization that generally uses the “pure play approach” for identifying the estimated cost of capital might come up with different issues (Mintz 2016). The particular reason behind this is that the definite investment that is made by the firm would not be able to scrutinize. The organization uses the estimated value of the beta by using the particular firm that can be contrasted to the provided organization by utilizing the “pure play approach”. The company return is studied by using this specified approach that would not be able to scrutinize the investment return. The firm’s beta cannot be calculated in a straight method. The true value of this investment might not be obtained from the particular “pure play approach”. The cause is that the substitute values are utilized for identifying the return from the investments and the situation might also be dissimilar especially when it is included within the real line of business (Weil, Schipper and Francis 2013). Thus, the true worth of the particular investment that is made along with the return that is developed might not be replicated by using the true worth.

References

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Au.finance.yahoo.com. 2016. HVN.AX Historical Prices | HARVEY FPO Stock – Yahoo!7 Finance. [online] Available at: https://au.finance.yahoo.com/q/hp?s=HVN.AX&a=00&b=29&c=1988&d=08&e=22&f=2016&g=v [Accessed 22 Sep. 2016].

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Bebbington, J., Unerman, J. and O’Dwyer, B., 2014. Sustainability accounting and accountability. Routledge.

Brealey, R.A., Myers, S.C., Allen, F. and Mohanty, P., 2012. Principles of corporate finance. Tata McGraw-Hill Education.

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Deegan, C., 2012. Australian financial accounting. McGraw-Hill Education Australia.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Demski, J., 2013. Managerial uses of accounting information. Springer Science & Business Media.

Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting)(Vol. 29). Routledge.

Freeman, R.J., Shoulders, C.D., Allison, G.S., Smith Jr, G.R. and Becker, C.J., 2014. Governmental and nonprofit accounting: theory and practice.JPAEJOURNAL OF PUBLIC AFFAIRS EDUCATION VOLUME 20 NUMBER 3, p.441.

Gitman, L.J. and Zutter, C.J., 2012. Principles of managerial finance. Prentice Hall.

Harveynormanholdings.com.au.2016.www.harveynormanholdings.com.au/pdf_files/2015-Annual-Report.pdf. [online] Available at: https://www.harveynormanholdings.com.au/pdf_files/2015-Annual-Report.pdf [Accessed 25 Sep. 2016].

Hopwood, W.S., Leiner, J.J. and Young, D.G.R., 2012. Forensic accounting and fraud examination. McGraw-Hill.

Horngren, C.T., Sundem, G.L., Schatzberg, J.O. and Burgstahler, D., 2013.Introduction to management accounting. Pearson Higher Ed.

Hribar, P., Kravet, T. and Wilson, R., 2014. A new measure of accounting quality. Review of Accounting Studies, 19(1), pp.506-538.

Johnson, R.C. and Noguera, G., 2012. Accounting for intermediates: Production sharing and trade in value added. Journal of international Economics, 86(2), pp.224-236.

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.

Lafond, C.A., McAleer, A.C. and Wentzel, K., 2016. Enhancing the Link between Technology and Accounting in Introductory Courses: Evidence From Students. Journal of the Academy of Business Education, 17.

Mintz, S., 2016. Ethical obligations and decision-making in accounting: text and cases. McGraw-Hill Higher Education.

Pratt, J., 2013. Financial accounting in an economic context. Wiley Global Education.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

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