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Financial Strategy - Assignment

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Added on  2021-06-30

Financial Strategy - Assignment

   Added on 2021-06-30

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2021 Assignment 1 FINANCIAL STRATEGY
Financial Strategy - Assignment_1
Contents Calculations............................................................................................................................. 2Task 1 – What is the payback period of the project? ............................................................. 3Task 2 – What is the profitability Index of the project? ......................................................... 4Task 3 – What is the IRR of the project? ................................................................................ 4Task 4 – What is the NPV of the project? ............................................................................... 5Task 5 – How sensitive is the NPV to changes in the price of the new smartphone? ........... 5Task 6 – How sensitive is the NPV to changes in the quantity sold? ..................................... 7Task 7 – Should EMU Electronics produce the new smart phone?........................................ 8Task 8 – Suppose EMU Electronics loses sales on other models because of the introduction of the new model. How would this affect your analysis? ...................................................... 9Bibliography .......................................................................................................................... 10
Financial Strategy - Assignment_2
Calculations EMU electronics is going to invest in developing a new and more enhanced smartphone, however, the company must take a lot of factors into consideration before deciding if the investment will be profitable. To find out if the investment will be profitable, it is necessary to calculate the information that has been given to be able to find the payback period, profitability index, the IRR and the NPV. In year 0 the initial investment is recorded and that is the plant and machinery, what the company invested in the marketing research and the prototype development of the new product. In years 1 to 5 we can see the cash flow from the sales of the new smartphone, it is known that the price per unit is 485 and we have information on how many units were sold from years 1-5. From the cashflow information that has now been gathered it is time to subtract the variable cost which was 205 per unit and the fixed cost and lastly the depreciation as can be seen in table 1. After that the pre-tax cash flow has been calculated. Table 1 – Pre-tax cash flow Year Cash flow Variable cost Fixed cost Depreciation Pretax CF 0 - 35.450.000 - 35.450.000 1 31.040.000 - 13.120.000 - 5.100.000 5.800.000 18.620.000 2 51.410.000 - 21.730.000 - 5.100.000 5.800.000 30.380.000 3 42.195.000 - 17.835.000 - 5.100.000 5.800.000 25.060.000 4 37.830.000 - 15.990.000 - 5.100.000 5.800.000 22.540.000 5 26.190.000 - 11.070.000 - 5.100.000 5.800.000 15.820.000 Now it is time to find the cash flow after tax, it is known that the tax is 30% so it is necessary to multiply the cashflow with 30% each year and then subtract it to the pre-tax CF to find the after-tax cash flow. Next step is to apply the required return to the after-tax cash flow to get the present value, this needs to be done to adjust the time value of the money. The formula used to find the required return is: 1/(1+r)n where: n: the year of cashflow r: rate.
Financial Strategy - Assignment_3
(Pike and Neale, 2009) After having calculated the required return, we multiply that with the after-tax cashflow and get the present value. The calculations can be seen in table 2. Table 2 – Tax and present value Year Tax 30% CF after tax Required return 12% Present value 0 - 35.450.000 1 - 35.450.000 1 - 5.586.000 13.034.000 0,892857143 11.637.500 2 - 9.114.000 21.266.000 0,797193878 16.953.125 3 - 7.518.000 17.542.000 0,711780248 12.486.049 4 - 6.762.000 15.778.000 0,635518078 10.027.204 5 - 4.746.000 11.074.000 0,567426856 6.283.685 NPV 21.937.563 Task 1 –What is the payback period of the project? The payback period is an approach that is used to analyse investments and gives information on how long it takes for the future cash flow to match the initial cash outlay, or just in simpler words how long does it take for an investment to be profitable? (Pike and Neale, 2009) The formula is: (initial investment – opening cumulative CF)/(closing – opening CF) By using the information from table 3 and using the formula: Payback period = we get 2 + (1.150.000/17.452.000) = 2,066 years Table 3 – Payback period Payback period Year Annual CF Cumulative CF 0 - 35.450.000 - 35.450.000 1 13.034.000 - 22.416.000 2 21.266.000 - 1.150.000 3 17.542.000 16.392.000 4 15.778.000 32.170.000 5 11.074.000 43.244.000
Financial Strategy - Assignment_4

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