1.A data analytics company wants Short Stop to provide a newclient billing process which integrates their current customerswith new payment options as well as technical information. Thepayment for Short Stop’s services would be structured with thespecific payments to be $400,000 immediately, a further $300,000 atthe end of the 2nd year, $500,000 at the end of the 4th year and$1,000,000 on completion, at the end of the 7th year.
The paid monies can be invested at a nominal rate of 9% p.a.compounded monthly.
To complete the desired work, Short Stop would have to purchaseadditional computers and data sources immediately which are valuedat $1,500,000.
In determining if this project is a viable project for Short Stop,your manager wants you to provide a detailed information on thedifferences between the effective rate of return and a nominalrate. In what circumstances can we use these to evaluate differentinvestment opportunities?
2. As information becomes increasingly available, additionalstorage is needed for the handling of client’s insurancecapacities. Short Stop is looking to modernise the hardware inwhich they store the data. Under the proposed idea, Short Stopwould purchase dedicated virtual servers and cloud storage whichcosts $50,000 per year, indefinitely, from the end of year 2 onward(as it takes a year to implement this change). If implemented, thiswould result in an immediate cost saving of $500,000. Short Stophas estimated that it could invest this money elsewhere, as analternative, at 8% p.a.
From a business perspective, describe the concept of time value ofmoney in such a way that your description sheds light on howbusinesses come to financial investment decisions or howinvestments today can be valued in the future. In the discussion,your manager wants a clear description on the benefits of thisconcept for the business (or any business).
3. The company has an opportunity to purchase a small company (TrekTravel) which will augment the current operations of the company.The cash flows from the company are variable as it is still agrowing company. The owners of the company have indicated that theywould be willing to sell the company to Short Stop for $2 milliondollars. An independent accountant has reviewed Trek Travel’sannual statements and has estimated the future (yearly) cash flowsfrom its operations to be:
Yr 1: -$100,000, Yr 2: $300,000, Yr 3: $500,000, Yr 4: $600,000, Yr5: $800,000 and Yr 6: $1,100,000.
Short Stop requires a rate of return of 9% p.a. for an investmentof this kind.
As this project is the purchase of another company, your managerwishes for you to explain the objective of maximising / enhancingshareholder wealth. How would the managers of a company achievethis goal?

4. The last project involves rolling out a personal financeadvisory platform and includes the servicing and maintenance of theplatform. There are two competing clients who would purchase theplatform, however due to legal, licensing and competitionrestrictions, Short Stop can only sell the platform to one of theclients.
The first client is offering a payment structure comprising ofquarterly payments of $200,000 over a 6-year period, starting atthe end of the 1st quarter.
The second client is offering a different payment structurecompromising monthly payments of $60,000 over the 6-year period.Additionally, they will pay $30,000 at the start of each year for 6years, starting immediately.
Short Stop estimates that the personal finance advisory platformcan be created from current embedded systems and augmented withother applications. The required computing hardware can bedelivered and installed immediately after the client has beenapproved, at a cost of $3 million to Short Stop. As such, therollout of the project can be completed immediately after thechoice of client.
Given a required rate of return on a project such as this is anominal 12% p.a., your manager wishes you to advise on which clientShort Stop should choose to maximise value.
Given that the clients offering to pay for the personal financeadvisory platform are providing payment plans that are regular,detail using diagrams if needed, how payments received at thebeginning of a period differ from payments received at the end of aperiod. Provide some discussion on the present value and futurevalue of these types of cash flows in terms of how they arecalculated