Accounting and Finance for Business

This document provides study material and solved assignments on Accounting and Finance for Business. It includes topics such as cash budget, sales mix analysis, net present value, and payback period. The document also includes references for further reading.

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Accounting and finance for business

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Table of Contents
Question 1........................................................................................................................................3
Question 2........................................................................................................................................3
a)..................................................................................................................................................3
b)..................................................................................................................................................3
Question 3........................................................................................................................................4
a)..................................................................................................................................................4
b)..................................................................................................................................................4
c)..................................................................................................................................................5
d)..................................................................................................................................................5
References........................................................................................................................................7

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Question 1
Cash budget:
Particulars October Novembe
r
December
Opening balance 78010 174495 832020
Cash Sales 45000 47500 49000
Receipt of Loan 0 550000 0
Receipts from Accounts
Receivable
220000 244920 284020
Interest Received 2210 2305 2430
Receipts 345220 1019220 1167470
Wages 50000 50000 70000
Prepayments 0 0 9890
Office Furniture 16050 18950 0
Payments of Accounts
Payable
89675 103250 106950
Administrative Expense 15000 15000 15000
Payments 170725 187200 201840
Closing balance 174495 832020 965630
Question 2
a)
Particulars 1 year
old
2 year
old
3 year
old
Total
Sales mix 50000 35000 15000 100000
Sales mix % 0.5 0.35 0.15
Sale price 12 18 30
Variable cost 8 12 18
Contribution per unit 4 6 12
Weighted average contribution margin 5.9
Fixed cost 220500
Total break-even units 37373
Breakeven units 18686 13081 5606
b)
Particulars 1 year
old
2 year
old
3 year
old
Total

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Sales mix 40000 30000 30000 100000
Sale price 12 18 30
Variable cost 8 12 18
Contribution 4 6 12
Contribution in Amount 160000 180000 360000 700000
Fixed cost 260500
Profit 439500
The initiative has been taken in the business and in that the amount of the fixed cost is increasing
and with that, there is the change in the sales mix which is being made. The evaluation of the
same situation has been made with the help of calculation of the profit. It has been identified that
there is a contribution which is made at $700000 and when the fixed cost is considered after the
increment then also the company is making good amount of profits. It shows that there will be
benefit to the business and due to this the initiative shall be carried forward and undertaken in an
effective manner.
Question 3
a)
Year Cash
flow
PVF @
5%
PV
1 62000 0.952381 59047.62
2 62000 0.907029 56235.83
3 57000 0.863838 49238.74
4 41900 0.822702 34471.23
5 68700 0.783526 53828.25
PV of inflows 252821.7
PV of outflows 191000
Net present
value
61821.67
b)
Year Cash
flow
PVF @
7%
PV
1 62000 0.934579 57943.93
2 62000 0.873439 54153.2
3 57000 0.816298 46528.98
4 41900 0.762895 31965.31
5 68700 0.712986 48982.15

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PV of inflows 239573.6
PV of outflows 191000
Net present
value
48573.57
c)
Net present value is the technique with the help of which there will be an evaluation of the
project which will be made possible. In this method the present value of the inflows is calculated
with the help of the discount rate (Leung et al., 2014). The identified present value is then
compared with the outflows of the company and if the inflows will be more than that of the
outflows then it will be a positive situation for the company. In such situation the project will be
accepted as the company will be attaining the benefit.
In the given case the NPV has been calculated by taking into account the two discount rates and
in both the cases, there are positive results which have been attained (Pasqual, Padilla, and
Jadotte, 2013). Net present value is more with the rate of 5% and as the company will be making
the profits in both the circumstances the project will be undertaken.
d)
Year Cash
flow
Cumulative
cash flow
1 62000 62000
2 62000 124000
3 57000 181000
4 41900 222900
5 68700 291600
Payback period 3.24
The payback period is a project evaluation technique by which the acceptance or the rejection of
the proposal will be decided. In this the period within which the company will be able to recover
the complete cost will be identified. This is the period after which the profits will start to rise and
the company will be earning the required results. The earlier the payback period, the more
company will be earning (Al-Alawi and Bradley, 2013). In the given case there is the expected
payback period of 2 years which the company has provided. It estimates that the recovery will be

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made in this duration and from third year there will be profit which will be made.
The results which have been calculated do not coincide with the expected duration as the actual
period which has been identified is 3.24 years which is higher. The cost of the company will be
covered in this time frame and so the company will not be able to earn any amount during this
time. This shows that the actual profits of the business will be less than that of expected and this
is not a positive aspect. Due to the same, the project will not be undertaken ad the company will
not be making the purchase of the truck.

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References
Al-Alawi, B.M. and Bradley, T.H. (2013) Total cost of ownership, payback, and consumer
preference modeling of plug-in hybrid electric vehicles. Applied Energy, 103, pp.488-506.
Leung, B., Springborn, M.R., Turner, J.A. and Brockerhoff, E.G. (2014) Pathway‐level risk
analysis: the net present value of an invasive species policy in the US. Frontiers in Ecology and
the Environment, 12(5), pp.273-279.
Pasqual, J., Padilla, E. and Jadotte, E. (2013) Equivalence of different profitability criteria with
the net present value. International Journal of Production Economics, 142(1), pp.205-210.